The Office of Strategy Management - Harvard Business Review

Typically, strategy formulation is the responsibility of the existing strategic planning unit. The unit performs external and internal competitive analysis, ... Youhave1freearticlesleftthismonth. Youarereadingyourlastfreearticleforthismonth. Subscribeforunlimitedaccess. Createanaccounttoread2more. Balancedscorecard TheOfficeofStrategyManagement by RobertS.Kaplan and DavidP.Norton by RobertS.Kaplan and DavidP.Norton FromtheMagazine(October2005) Tweet Post Share Save Print Tweet Post Share Save Print TheIdeainBrief Mostlargeorganizationsfailtoachieveprofitablegrowth—despiteambitiousplans.Whythegapbetweenintendedandactualperformance?There’sanalarmingdisconnectbetweenthepartsoftheorganizationthatformulatecorporatestrategyandthefunctions,processes,andpeoplerequiredtoexecuteit. 67%ofHRandITdepartments’strategiesdon’treflectcorporatestrategy.60%oforganizationsdon’tlinktheirfinancialbudgetstostrategicpriorities.Compensationpackagesof90%offrontlineemployeesshownoconnectiontothesuccessorfailureofstrategyexecution.95%ofthetypicalcompany’sworkersareunawareof,ordon’tunderstand,itsstrategy. Howtoclosethebreachbetweenstrategyformulationandexecution?Createanofficeofstrategymanagement(OSM).YourOSMcouplestheunitsresponsibleforstrategicplanningwiththoseperformingtheactivitiesrequiredtoimplementstrategy—suchasestablishingbudgets,communicatingstrategytotheworkforce,anddesigningcompensationsystemsthatrewardstrategicperformance. ThepayofffordesigninganeffectiveOSM?Acorporatestrategythatdeliversonitspromises.ThanksinparttoitsOSM,theChryslerGroupgenerated$1.2billioninearningsandlaunchedaseriesofexcitingnewcarsin2004—whiletherestoftheU.S.domesticautomarketlanguished. TheIdeainPractice Designyourofficeofstrategymanagementtoperformthesefunctions: Createandoverseeyourstrategymanagementsystem.Helptheexecutiveteamselectperformancetargetsandidentifyrequiredstrategicinitiatives.Initiateandadministeryourcompany’sstrategicperformancereportingsystem.Tomaintainintegrityofperformancedata,createandenforceuniformorganization-widemetrics. Incorporatechangesincorporatestrategyintoalldocumentsandtoolsthatthecompanyusestotrackstrategicperformance—suchasstrategymapsandtheBalancedScorecard. Aligntheorganization.Activelymanageorganizationalalignmentwithcorporatestrategy.Institutionalizetheuseofacommonstrategicperformancereportingsystembyallunits.Ensurethatbusinessunitandsupportunitstrategiesarelinkedtooneanotherandtothecompany’sstrategy. Communicatestrategy.Throughnewsletters,CEOspeeches,andotherchannels,communicatecorporatestrategy,targets,andinitiativestotheworkforce.CoordinatewithHRtoensurethateducationaboutthestrategymanagementprocessisincludedintrainingprograms. Reviewstrategy.Organizeandleadmonthlystrategy-reviewmeetings,briefingtheCEOaboutstrategicconcernsinadvance.Documentneededadjustmentstostrategyandexecutionidentifiedduringmeetingsandfollowuptoensurethatchangesareimplemented.Helpthechieffinancialofficerpreparestrategyupdatesforboardmeetings. Refinestrategy.Evaluatenewstrategicideascomingfromwithintheorganizationandconveypromisingonestoseniormanagement. Managestrategicinitiatives.Managestrategy-relatedinitiativesthatcrossunitandfunctionallines,toensuretheyreceivesufficientresourcesandattention.Monitorprogressofallstrategicinitiativesandreportonthemtotopmanagement. Consultwithkeystrategysupportfunctions. Planningandbudgeting.Workwiththefinancedepartmenttoensurethatcorporateandunitbudgetsreflectthoseestablishedduringthestrategicplanningprocessandthateachunit’sbudgetincludesresourcesneededfortheunit’scontributiontocross-functionalstrategicinitiatives. Humanresourcealignment.SeethattheHRfunctionmanagesemployeeincentives,competencydevelopmentprograms,andannualperformancereviewsinamannerconsistentwithcorporateandbusinessunitstrategicobjectives. Knowledgemanagement.Coordinatewiththechieflearningofficertoensurethatthebestpracticesandideasmostcriticaltothecorporatestrategyaresharedthroughouttheorganization. Leerenespañol Leremportuguês Mostcompanieshaveambitiousplansforgrowth.Feweverrealizethem.IntheirbookProfitfromtheCore,ChrisZookandJamesAllenreportthatbetween1988and1998,sevenoutofeightcompaniesinaglobalsampleof1,854largecorporationsfailedtoachieveprofitablegrowth.Thatis,thesecompanieswereunabletodeliver5.5%annualrealgrowthinrevenuesandearningswhileearningtheircostofcapital(arathermodesthurdle).Yet90%ofthecompaniesinthestudyhaddevelopeddetailedstrategicplanswithmuchhighertargets. Whyistheresuchapersistentgapbetweenambitionandperformance?Thegaparises,webelieve,fromadisconnectinmostcompaniesbetweenstrategyformulationandstrategyexecution.Ourresearchrevealsthat,onaverage,95%ofacompany’semployeesareunawareof,ordonotunderstand,itsstrategy.Iftheemployeeswhoareclosesttocustomersandwhooperateprocessesthatcreatevalueareunawareofthestrategy,theysurelycannothelptheorganizationimplementiteffectively. Itdoesn’thavetobelikethis.Forthepast15years,wehavestudiedcompaniesthathaveachievedperformancebreakthroughsbyadoptingtheBalancedScorecardanditsassociatedtoolstohelpthembettercommunicatestrategytotheiremployeesandtoguideandmonitortheexecutionofthatstrategy.(ForbackgroundontheBalancedScorecard,seeourbookTheStrategy-FocusedOrganization,HarvardBusinessSchoolPress,2000.) Somecompanies,ofcourse,haveachievedbetterandlonger-lastingimprovementsthanothers.Theorganizationsthathavemanagedtosustaintheirstrategyfocushavetypicallyestablishedanewunitatthecorporateleveltooverseeallstrategyrelatedactivities,anofficeofstrategymanagement(OSM),aswecallit. Thismightappeartobenothingmorethananewnameforthefamiliarstrategicplanningunit.Butthetwoarequitedifferent.Thetypicalplanningfunctionfacilitatestheannualstrategicplanningprocessbuttakeslittleornoleadershiproleinseeingthatthestrategygetsexecuted.Thecompanieswestudied,however,recognizethateffectivestrategyexecutionrequirescommunicatingcorporatestrategy;ensuringthatenterprise-levelplansaretranslatedintotheplansofthevariousunitsanddepartments;executingstrategicinitiativestodeliveronthegrandplan;andaligningemployees’competencydevelopmentplans,andtheirpersonalgoalsandincentives,withstrategicobjectives.What’smore,theyrecognizethatthecompany’sstrategymustbetestedandadaptedtostayabreastofthechangingcompetition.TheOSMbecomesthecentralpointforcoordinatingallthesetasks.Itdoesnotdoallthework,butitfacilitatestheprocessessothatstrategyexecutiongetsaccomplishedinanintegratedfashionacrosstheenterprise. Inthefollowingpages,wewilldescribehowtheconceptoftheofficeofstrategymanagementcameintobeingandhowithashelpedcompaniesalignkeymanagementprocessestostrategy.AlthoughthecompanieswehavestudiedusetheBalancedScorecardastheframeworkfortheirstrategymanagementsystems,webelievethatthelessonswedrawarealsoapplicabletocompaniesthatdonotusetheBalancedScorecard. StrategyManagement:TheNewSupportFunction Theexhibit“TheOldStrategyCalendar”depictsthestrategymanagementscheduleatatypicallargecompany.Theprocessstartsaboutmidwaythroughthefiscalyear,whentheCEOandtheexecutiveteamgettogethertoclarifytheirstrategicvisionandupdatethestrategy.Sometimeafterward,similarprocessestakeplaceatthebusinessandfunctionalunits,ledbyunitheadsandotherseniorexecutives.Towardtheendofthethirdquarter,thefinancefunctiontakesthebaton,finalizingcorporateandunitbudgets.Attheendoftheyear,theHRfunctionconductsemployees’annualperformancereviewsandorchestratesthesettingofprofessionalgoalsanddevelopmentprograms.Throughouttheyear,meanwhile,differentteamsandunitshaveengagedinperformancereviews,corporatecommunication,andknowledgesharing. TheOldStrategyCalendar Theproblemwiththisapproachisthattheactivitiesarecarriedoutlargelyinisolationandwithoutguidancefromtheenterprisestrategy.Thispartitionofresponsibilitiescreatesthegulfbetweenanorganization’sstrategyanditsprocesses,systems,andpeople.SurveysthatweconductedofHRandITmanagersrevealthatthestrategiesoffully67%ofthoseorganizationsarenotalignedwithbusinessunitandcorporatestrategies;nordoHRandITdepartmentalplanssupportcorporateorbusiness-unitstrategicinitiatives.Budgetingissimilarlydisconnected:Some60%oforganizationsdonotlinktheirfinancialbudgetstostrategicpriorities.Incentivesaren’taligned,either:Thecompensationpackagesof70%ofmiddlemanagersandmorethan90%offrontlineemployeeshavenolinktothesuccessorfailureofstrategyimplementation.Periodicmanagementmeetings,corporatecommunication,andknowledgemanagementaresimilarlynotfocusedonstrategyexecution. Whatcancompaniesdotochangethisstateofaffairs?TheexperienceoftheChryslerGroupfirstsuggestedtousthattheanswerliesinbringingallstrategy-relatedactivitiesintoasinglefunctionalunit.Afterastringofinnovativesuccessesintheearly1990s,Chryslerhadhitadryspell.Performanceproblemswereexacerbatedbyaneconomicdownturn,risingcosts,andencroachingimports,andby2000,thecompanywasstaringataprojecteddeficitofmorethan$5billionforthecomingyear.Atthispoint,theparentcompany,DaimlerChrysler,appointedanewCEO,DieterZetsche,whointroducedtheBalancedScorecardaspartofamajorchangeinstrategy.TheprojectwasspearheadedbyBillRusso,vicepresidentofbusinessstrategy,whoseunitworkedwithChrysler’sexecutiveteamtotranslatethecompany’snewstrategyintoaBalancedScorecard.Russo’sunitalsoservedastrainerandconsultanttohelpChrysler’sbusinessandsupportunitscreatelocalscorecardsthatwerealignedwithcorporateobjectivesandcustomizedtolocaloperations.Oncethedesignphasehadbeencompletedandscorecardshadbeencascadedthroughoutthecompany,thestrategygroupmaintainedresponsibilityforthedatacollectionandreportingprocessesforthescorecards. Uptothispoint,Chrysler’sBalancedScorecardprojecthadfollowedatraditionalcourse.WhereChryslerbrokenewgroundwasintherolesassumedbythestrategygroup.Thegrouptooktheleadinpreparingscorecard-relatedmaterialstocommunicatethestrategytothemorethan90,000employees.RussobegantobriefZetschebeforeeachmanagementmeetingaboutissuesthathadbeenrevealedthroughthescorecardreportingandthatrequiredmanagementattentionandaction.Inhiscapacityasamemberoftheexecutiveteam,Russofollowedupaftereachmeetingtomakesurethattherequireditemswerecommunicatedandactedupon.Asaresultofthisproactiveinvolvementinagendasettingandfollow-up,theresponsibilitiesofthebusinessstrategyfunctionexpandedtoincorporatemanynewcross-enterprisestrategyexecutionprocesses.ThuswasbornChrysler’sOfficeofStrategyManagement—aunitcurrentlyemployingsome13full-timepeoplewhonotonlymanagethecompany’sstrategybutalsoassistthebusinessunitsindevelopingnewproducts.Chrysler’snewapproachtostrategyexecutionappearstohavepaidoffhandsomely.In2004,despiteaweakdomesticautomobilemarket,Chryslersuccessfullylaunchedaseriesofexcitingnewcarsandgenerated$1.2billioninearnings. TheU.S.Army’sBalancedScorecardprojectproducedanofficeofstrategymanagementinmuchthesameway.AcentralprojectteamatthePentagonheadquarters,undertheleadershipoftheArmychiefofstaff,developedtheinitialscorecard,whichtheArmycalledtheStrategicReadinessSystem(SRS).Theprojectteamalsoselectedthesoftwaretobeusedforscorecardreportingandestablishedsystemsandprocessessothatthescorecardwouldberegularlypopulatedwithvalid,timelydata.Inthenextphase,theteamhelpedtocascadescorecardsto13majorsubcommandsandsubsequentlytomorethan300subsidiarycommandsthroughouttheworld.Thecentralizedprojectteamprovidedtraining,consulting,software,andonlinesupportforthedispersedprojectteams.Thecentralteamalsoreviewedthescorecardsproducedbylocalprojectteamstoensurethattheirgoalswerealignedwiththosearticulatedonthechiefofstaff’sscorecard. TheArmy’sprojectteam,likeitscounterpartatChrysler,soontookonmorethanthetraditionalrolesofscorecardcustodianandconsultant.Itestablishedandtookownershipofastrategycommunicationprogram.TheArmyteamcreatedaWebsitethatwasaccessiblefromaroundtheworldinbothclassifiedandunclassifiedversions,developedanonlineportalandlibrarycontaininginformationabouttheSRS,wrotearticlesabouttheinitiative,publishedabimonthlynewsletter,conductedanannualconference,ledperiodicconferencecallswithSRSleadersateachcommandlevel,andconductedscorecardtraining,bothinpersonandontheWeb.Thisextensivecommunicationprocesswascriticalforeducatingsoldiersandcivilianemployeesandgainingtheirsupportforthenewstrategy.AndtheArmyprojectteam,muchasChrysler’sdid,begantofacilitatethemonthlydiscussionsatheadquartersaboutthereadinessstatusofunitsaroundtheworld.Onceagain,anadhocprojectteamhadturnedintoasustainablepartoftheorganization’sstructure(theteamandtheSRSsurvivedtheappointmentofanewchiefofstaffinJune2004). Aunitwithresponsibilityfortheimplementationofstrategybecomesaconvenientfocalpointforideasthatpercolateupthroughtheorganization. Thecreationofacentralofficeforstrategyexecutionmayappeartoriskreinforcingtop-downdecisionmakingandinhibitinglocalinitiative,butitdoesjusttheopposite.Aunitwithresponsibilityfortheimplementationofstrategybecomesaconvenientfocalpointforideasthatpercolateupthroughtheorganization.Theseemergingideascanthenbeputontheagendasofquarterlyandannualstrategyreviews,withthebestconceptsbeingadoptedandembeddedinenterpriseandbusinessunitstrategies.TheOSMisafacilitatingorganization,notadictatingone. WhatGoodOSMsDo MostoftheorganizationswehavestudiedfollowthepathChryslerandtheArmytook:TheBalancedScorecardprojectteamincrementallyandorganicallyassumesmoreandmoreresponsibilitiesonitsowninitiative.Butthat’snottheonlywaytoinstituteanOSM.Fromthesecases,wehavelearnedwhatfunctionsaneffectiveOSMmustperformandhowanOSMmustrelatetootherfunctionswithintheorganization.Asaconsequence,afeworganizationsweadvisehaverecentlyoptedtomakethecreationofanOSManearlyandintegralpartoftheirscorecardinitiatives.CanadianBloodServices,themainproviderofbloodservicesinCanadawithanannualbudgetofCan$900million,morethan4,000employees,and17,000volunteers,isanexcellentexampleofanorganizationthatcreatedanOSMatthebeginningofitsjourneytobecomingmorestrategyfocused.(Seethesidebar“HowtoWieldInfluenceandStayInformed,”byCEOGrahamSher.) HowtoWieldInfluenceandStayInformed byGrahamSher AsthechiefexecutiveofthenonprofitthatmanagesthesupplyofbloodproductsforallofCanadaexcepttheprovinceofQuebec,Iinstitutedanofficeofstrategymanagementtohelpmecopewiththreebigchallengesinimplementingastrategicagenda.First,Ispendagreatdealoftimedealingwithexternaldemandsandconstituents.Inadditiontoreportingtotheboardofdirectorsofmyorganization,CanadianBloodServices(CBS),Imustalsofocusonthe12Canadianprovincialandterritorialgovernmentsthatprovideitsfunding.SoIhavelimitedtimeandinformationwithwhichtomanageinternalissues. Also,whilemanypeoplebelievethatchiefexecutiveswielddirectandeasyinfluence,therealityisthatanyCEOhasadifficulttimeinfluencinghisorherorganization.ACEO’sattemptstocommandandcontrolunderminetheauthorityofseniorexecutives.Iwanttoexertmyinfluenceindirectlyandinawaythatempowersmyexecutivesandcreatesanenvironmentinwhichtheycanleadandmanagetheirpartsoftheorganization.Isetthetone,andIdefinethestrategicagenda,communicateit,andensurethatitgetsundertaken,butIdon’tcommandanypartsoftheorganization. Mythirdchallengeisstayinginformed.Information,particularlybadnews,isfilteredbeforeitgetstome.Itypicallydonotseethemosttimely,validinformationaboutCBS’scurrentperformance.BeforeourOSMwasimplemented,wewerespendingwaytoomuchtimedebatingthequalityofourinformation—obviouslyanunwieldywayofexecutingstrategyandaverytime-intensivewayofconductingmanagementmeetings. IseetheBalancedScorecard,managedbyanofficeofstrategymanagement,asawayofovercomingthesethreebarrierstosuccess.TheBalancedScorecardempowersexecutives,asopposedtoinvadingtheirterritoryandunderminingtheirauthority.Itgivesmeperformancemanagementinformationthatisalignedatallexecutivelevelsandappropriatelyvalidatedbeforeitcomestomyattention.Muchofmanagementisasearchforthetruth.TheBalancedScorecardprovidesmewitheasyaccesstotimely,unfilteredinformationaboutourstrategyimplementation. Becauseofmyurgentneedtoaccomplishchange,IfollowedtheunconventionalrouteofestablishinganofficeofstrategymanagementattheoutsetofourBalancedScorecardproject.IalsowantedtheOSMtoreportdirectlytome—thatwasawaytohighlighttheimportanceofthisofficetomystrategicagenda.ButtheOSMneededotherclearlydefinedlinkagesorrelationships,too;IwantchangeatCBStocomefromwithin,nottobeimposedfromabove.Tothatend,Icreatedadotted-linereportingrelationshipbetweentheOSMandtwootherkeyexecutivesatCBS,theCFOandtheCOO,whoultimatelyaregoingtohelpexecutethechangeagenda.Ididnotcreatethenewcorporate-levelOSMunitlightly.Itspositioningintheorganizationenablesmetofulfillmyinternaldutiesasachangeleaderbutdoesn’taffectmyabilitytomeetthemanyexternalobligationsIhaveastheCEOofarapidlyevolvingpublic-sectororganizationemergingfromcrisis—Canada’sblood-supplysystemwascompletelyrevampedafterthousandsofpeoplereceivedcontaminatedbloodinthe1980sand1990s. AsfortheOSM’sresponsibilities,Iseestrategymanagementasbeingmadeupofthreehigh-levelprocesses:strategyformulation,leadingtostrategyexecution,leadinginturntostrategylearning,whichthencyclesbacktostrategyformulation.Theexhibit“TheProcessesofStrategy”showstheactivitieswithinthecategories.TheOSMhasprimaryresponsibilityformostoftheseprocesses,butnotall.Forexample,in2004,theOSMledtheprojectteamthatdevelopedthestrategymapsandscorecardsfortheenterprise,ourthreeoperatingdivisions,andtwosupportunits—humanresourcesandinformationtechnology.Forsomeprocesses,however,theOSM’sroleismoreintegrativeandfacilitativethandirect.Forexample,thechieffinancialofficerhasprimaryresponsibilityforbudgeting,withtheOSMplayingacoordinatingrole. WelaunchedtheOSMwiththreefull-timeindividuals.TheOSMleaderisavicepresidentandamemberoftheexecutivemanagementteam;herpositionintheorganizationisconsistentwiththeimportancewegivethisfunction.Sheleadsandfacilitatestheintegrationofstrategyintoallourcoreprocesses.Inaddition,wehavetwoindividualsreportingtotheOSMleadertoprovideday-to-daymanagementoftheoffice;tomanagethemultipleworkstreamsandcross-functionalteams;toleadandfacilitatemeetings;toeducatepeopleontheBalancedScorecardandotherstrategy-focusedpracticesandtools;andtoperformanalysesofproblems,performance,andmetrics.ThisshouldbetherightcomplementofindividualstohelpsupporttheleaderoftheOSM,andultimatelytherestoftheexecutiveteam,inundertakingourambitiouschangeagendaforthisyear. GrahamSheristheCEOofCanadianBloodServices,basedinOttawa. WhatshouldpeopledesigninganOSMbearinmindastheyembarkontheproject?ThroughresearchintoBalancedScorecardbestpractices,we’veidentifiedtheactivitiesthatshouldbedirectlymanagedbyorcoordinatedwithanOSM.Someoftheseactivities—specificallythoseinvolvedincreatingandmanagingthescorecard,aligningtheorganization,andsettingtheagendaformonthlystrategyreviews—arethenaturalturfofanOSM.TheydidnotexistpriortotheintroductionoftheBalancedScorecard,sotheycanbegiventoanewunitwithoutinfringingonthecurrentresponsibilitiesofanyotherdepartment.Butmanyotheractivities—strategicplanning,budgetsupervision,orHRtraining,forinstance—arealreadytheterritoryofotherunits.Inthesecases,thecompanyneedstobeexplicitabouttheallocationofresponsibilitiesbetweentheOSMandotherfunctionalunits.WehaveidentifiedthefollowingbasicOSMtasks: Createandmanagethescorecard. Astheownerofthescorecardprocess,theOSMmustensurethatanychangesmadeattheannualstrategy-planningmeetinggettranslatedintothecompany’sstrategymapandBalancedScorecard.Oncetheexecutiveteamhasapprovedtheobjectivesandmeasuresforthesubsequentyear,theOSMcoachestheteaminselectingperformancetargetsonthescorecardmeasuresandidentifyingthestrategicinitiativesrequiredtoachievethem.Asguardianofthescorecard,theOSMalsostandardizestheterminologyandmeasurementdefinitionsacrosstheorganization,selectsandmanagesthescorecardreportingsystem,andensurestheintegrityofthescorecarddata.TheOSMneednotbetheprimarydatacollectorforthescorecard,butitshouldoverseetheprocessesbywhichdataarecollected,reported,andvalidated.Finally,theOSMservesasthecentralscorecardresource,consultingwithunitsontheirscorecarddevelopmentprojectsandconductingtrainingandeducation. Aligntheorganization. Acompanycanexecuteitsstrategywellonlyifitalignsthestrategiesofitsbusinessunits,supportfunctions,andexternalpartnerswithitsbroadenterprisestrategy.Alignmentcreatesfocusandcoordinationacrosseventhemostcomplexorganizations,makingiteasiertoidentifyandrealizesynergies.Atpresent,fewcompaniesactivelymanagetheprocessofalignment;inmanycases,unitstrategieshaveonlyrhetoricallinkswithcorporatestrategy.TheOSMswe’vestudiedhelptheentireenterprisetohaveaconsistentviewofstrategyandtosystematicallymanageorganizationalalignment.TheOSMoverseestheprocessofdevelopingscorecardsandcascadingthemthroughthelevelsoftheorganization.Itdefinesthesynergiestobecreatedthroughcross-businessbehavioratlowerorganizationlevelsandensuresthatindividualbusinessunitandsupportunitstrategiesandscorecardsarelinkedtoeachotherandtothecorporatestrategy. Reviewstrategy. Foralltheirprofessedcommitmenttostrategy,seniormanagersspendremarkablylittletimereviewingit.Ourresearchsuggeststhat85%ofexecutiveleadershipteamsspendlessthanonehourpermonthdiscussingtheirunit’sstrategy,with50%spendingnotimeatall.Companiesthatmanagestrategywellbehavedifferently.Topmanagersusuallymeetonceamonthforfourtoeighthours.Thismeetingprovidestheopportunitytoreviewperformanceandtomakeadjustmentstothestrategyanditsexecution.Theunderlyinghypothesesofthecompany’sstrategycanbetestedandnewactionsinitiated.ManagingthismeetingisacorefunctionoftheOSM.ItbriefstheCEOinadvanceaboutthestrategicissuesidentifiedinthemostrecentscorecardsothattheagendacanfocusonstrategyreviewandlearning,ratherthanjustashort-termfinancialperformancereviewandcrisismanagement.TheOSMthenmonitorsthemeetingtodetermineactionplansandfollowsuptoensurethattheplansarecarriedout.Sincetheboardofdirectorsalsoplaysanimportantroleinreviewingandguidingstrategy,theOSMhelpsthechieffinancialofficerpreparetheboardpacketandagendaforboardmeetings. Developstrategy. Typically,strategyformulationistheresponsibilityoftheexistingstrategicplanningunit.Theunitperformsexternalandinternalcompetitiveanalysis,conductsscenarioplanning,organizesandrunsanannualstrategymeeting,andcoachestheexecutiveteamonstrategicoptions.Butdevelopingstrategyshouldnotbeaonetimeannualevent.Afterall,performancemeasures,suchasthosesuppliedbytheBalancedScorecard,providecontinualevidenceaboutthevalidityoftheassumptionsunderlyingacompany’sstrategy.Thoseassumptionscanbediscussedperiodicallybytheexecutiveteam,whichcanupdatethestrategyifappropriate.Andstrategydevelopmentshouldnotbedoneonlybyseniormanagers.TheOSMorstrategicplanningunitcanactasafilterfornewideasthatcomefromwithintheorganization.We’vefoundthatmostplanningunitsadaptfairlyquicklytothecontinualstrategydevelopmentprocessweobserveatscorecard-drivencompanies.Theadditionalprocessesrepresentanaturalextensionof,andcomplementto,theirtraditionalwork.Problemsarisewhenascorecardprojectismanagedbyagroupfromoutsideplanning(suchasHR,quality,oranadhocteam).Asthescorecardacquiresstrategicimportance,conflictsoverstrategydevelopmentcanarisebetweentheplanningunitandthescorecardteam.Ifthisoccurs,topmanagementshouldquicklymergethetwogroups. Communicatestrategy. Effectivecommunicationtoemployeesaboutstrategy,targets,andinitiativesisvitalifemployeesaretocontributetothestrategy.CanonU.S.A.,ascorecarduser,describesitsinternalcommunicationprocessas“democratizingstrategy,”anditactivelypromotesunderstandingofthecompany’sstrategyandthescorecardinallbusinessunitsandsupportfunctions.Strategycommunication,therefore,isanaturalturfforanOSM.Butaswithstrategyplanning,internalcommunicationissometimesanotherunit’sexistingresponsibility.Inthesesituations,theOSMhastendedtotakeaneditorialrole,reviewingthemessagestoseethattheycommunicatethestrategycorrectly.Incaseswherethecorporatecommunicationsgrouphaslittleknowledgeoforfocusonstrategy,suchasatChryslerandtheU.S.Army,theOSMtakesonprimaryresponsibilityforcommunicatingboththescorecardandstrategytoemployees.Ineithersituation,theOSMshouldalwaystaketheleadincraftingstrategymessagesdeliveredbytheCEO,becauseoneofthemosteffectivecommunicationchannelsishavingeachemployeehearaboutstrategydirectlyfromtheCEO.Finally,aspartofitscommunicationresponsibilities,theOSMmustcooperatewithHRtoensurethateducationaboutthescorecardanditsroleisincludedinemployeetrainingprograms. Managestrategicinitiatives. Strategicinitiatives—suchasaTQMprogramortheimplementationofCRMsoftware—arediscretionaryprogramsthathelpcompaniesaccomplishstrategicobjectives.Theexecutiveteamtypicallyidentifiestheseinitiativesaspartofitsannualplanningprocess,althoughnewinitiativesmayarisethroughouttheyear.Ideally,theentireportfolioofsuchinitiativesshouldbeassessedandreprioritizedseveraltimesannually.Thescreening,selection,andmanagementofstrategicinitiativesarewhatdrivechangeinthecompanyandproduceresults.Ourexperiencesuggeststhatsuchinitiativesshouldbemanagedseparatelyfromroutineoperations.Typically,theyaremanagedbytheunitsmostcloselyassociatedwiththem(aCRMproject,forinstance,isbestmanagedbycustomerservice)orbyanadhocteamdrawnfromthefunctionsorunitsaffected.Responsibilityformanaginginitiativesthatalreadyhaveanaturalhomeshouldremainwiththeassociatedunitorfunction.TheOSMintervenesonlywhenaninitiativefallsbehindschedule,isoverbudget,orisnotdeliveringexpectedresults.ButtheOSMshouldmanageinitiativesthatcrossunitandfunctionallines—itcanthusmakesurethattheygettheresourcesandattentiontheyneed.Inallcases,theOSMretainsresponsibilityformonitoringtheprogressofstrategicinitiativesandreportingonthemtotopmanagement. Integratestrategicprioritieswithothersupportfunctions. Existingfunctionaldepartmentsretainprimeresponsibilityforthreeotherkeyprocessesnecessaryforsuccessfulstrategyimplementation:planningandbudgeting,humanresourcealignment,andknowledgemanagement.Theseprocessesarecriticalforeffectivestrategyexecution,andtheOSMshouldplayaconsultativeandintegrativerolewiththerespectivefunctionaldepartments. PlanningandBudgeting. Atmostcorporations,thevariousfunctionaldepartmentsareresponsibleforplanninghowthecorporationwillallocateresourcesovertheyear.Thefinancedepartmentoverseesbudgetingandtheallocationofcashtotheunitsandcross-functionalinitiatives;ITmakesrecommendationsaboutinvestmentsindatabases,infrastructure,andapplicationprograms;andHRmakesplansforhiring,training,andleadershipdevelopment.Forastrategytobeeffective,allthefunctionalplansmustbealignedwiththestrategy.Thebudgetspreparedbythefinancedepartment,forexample,shouldreflectthoseestablishedinthestrategicplanningprocessandshouldincorporatefundingandpersonnelresourcesforcross-functionalstrategicinitiatives.Toensurethisalignment,theOSMmustworkcloselywithallthesefunctionalunits. HumanResourceAlignment. Nostrategycanbeeffectiveunlessthepeoplewhohavetocarryitoutaremotivatedandtrainedtodoso.Motivationandtrainingis,ofcourse,thenaturaldomainofHR,whichtypicallycarriesoutannualperformancereviewsandpersonalgoalsettingandmanagesemployeeincentiveandcompetencydevelopmentprograms.ItistheresponsibilityoftheOSMtoensurethatHRperformstheseactivitiesinamannerconsistentwithcorporateandbusinessunitstrategicobjectives.Thegoalistomakestrategyeveryone’sjob. KnowledgeManagement. Finally,theOSMneedstoensurethatknowledgemanagementfocusesonsharingthebestpracticesmostcriticalforthestrategy.Ifmanagersusethewrongbenchmarks,thecompany’sstrategywillfallshortofitspotential.Atsomecompanies,learningandknowledgesharingarealreadytheresponsibilityofachiefknowledgeorlearningofficer;inthosecases,theOSMneedstocoordinatewiththatperson’soffice.Butifsuchafunctiondoesnotalreadyexist,theOSMmusttaketheleadintransferringideasandbestpracticesthroughouttheorganization. TheNewStrategyCalendar Theexhibit“TheNewStrategyCalendar”illustratestheactivitiesthataproperlyconstitutedOSMwillbeengagedinduringtheyear.Thestrategycyclelaunchesatthebeginningofthesecondquarter,whentheOSMstartstoplanstrategyandupdatetheenterprisescorecard.Aftertheenterprisestrategymeeting,theOSMstartstheprocessofaligningtheorganizationwiththeenterprisegoals.Beforetheendofthethirdquarter,itwillbecoordinatingwithfinancetobringunit-levelplansandbudgetsinlinewithstrategy,andbythebeginningofthefourthquarter,itwillbeworkingwithHRonaligningthecompetencydevelopmentandincentivesofemployeeswithscorecardobjectives.Whilethesecalendar-drivenprocessesaregoingon,theunitcontinuallyengagesincontrolandlearning:reviewingandcommunicatingstrategy,managinginitiatives,andsharingbestpractices. PositioningandStaffingtheOSM ExecutingstrategyusuallyinvolvesmakingchangesthatonlyaCEOcanempower,andtheOSMwillbemosteffectivewhenithasdirectaccesstotheCEO.BarbaraPossin,thedirectorofstrategicalignmentatSt.Mary’sDuluthClinic,toldusshewasabletoovercomeresistancetoherinitiativesbecausemanagersknewshehadadirectreportinglinetothecompany’schiefoperatingandchiefexecutiveofficers.AnOSMburieddeepinthefinanceorplanningdepartmentmayfinditdifficulttocommandsimilarrespectandattentionfromseniorexecutivesforstrategymanagementpriorities. Thesimplestsolution,therefore,istoplacetheOSMonaparwithmajorfunctions,suchasfinanceandmarketing,thatreportdirectlytotheCEO.TheOSMserves,ineffect,astheCEO’schiefofstaff.ButiftheOSMhasoriginatedwithinapowerfulfunction,suchapositioningmaynotbefeasible.Inthatcase,theOSMwillusuallyreporttothechiefofthefunctioninwhichitisnested—suchastheCFOorvicepresidentofstrategicplanning—butwithoccasionaldirectaccesstotheCEO.AttheMexicaninsurancecompanyGrupoNacionalProvincial(GNP),forexample,theOSMreportsbothtothechiefexecutiveandtothechieffinancialofficer.TheOSMsetstheagendaforaweeklymeetingwiththeCEOandCFOandforabroaderweeklymeetingwiththesixtopcompanyexecutives.TheofficeofstrategymanagementatGNPalsohasamatrixedrelationshipwith20BalancedScorecardmanagersinthetwomajorbusinessunitsandninesupportunitsandwiththeownersofthemajorstrategicinitiatives.TherelationshipenablestheOSMtocoordinatethestrategicplanningdoneinthebusinessandsupportunits. It’ssimplesttoplacetheofficeofstrategymanagementonaparwithfunctionsthatreportdirectlytotheCEO.theofficeserves,ineffect,astheCEO’schiefofstaff. TheOSMmaybeanimportantfunctionalunit,butitdoesn’thavetobelarge;itiscertainlynotourgoaltoencouragecompaniestobuildanewbureaucracy.AlthoughChrysleremploys13full-timepeopleinitsOSM,reflectingtheunit’sinvolvementinproductdevelopment,ourexperiencesuggeststhatfirmswithsalesof$500millionto$5billionand1,000to10,000employeescangetbywithfewerthantenpeople.Inprinciple,astheexhibitonthispageshows,afullyfunctioningOSMshouldnotneedmorethansixtoeightfull-time-equivalentpositionstocopewithitsactivities. WehaveobservedthatestablishinganOSMdoesnotusuallyinvolvehiringexpensivenewtalent.TheOSMistypicallystaffedwithpeoplewholedtheBalancedScorecardproject—theyoftencomefromtheplanningandfinancefunctions,butsomecomefromotherstaffgroupssuchasquality,HR,andIT.SeveralorganizationswestudiedhavereportedthatthepeopleassignedtotheirOSMsdonotconstituteanetincreaseintheorganization’sheadcount.Inmanycases,theevolutionofawell-functioningOSMactuallyhelpsreduceoverallheadcount,thankstotheOSM’sroleinstreamliningandfocusingmanagementprocessesandhelpingmanagerseliminatelayersofstaffengagedindatagatheringandreporting.TheOSM,however,shouldbeassessedbythevalueitcreatesthroughsuccessfulstrategyexecution,notbywhetheritcanreduceheadcount.••• Manyorganizationshaveachieveddramaticperformanceimprovementsbysustainingafocusonimplementationofstrategy.Wehavecapturedandcodifiedabodyofknowledgefromthesesuccessfulorganizationsthatprovidesthefoundationforanemergingprofessionalfunctionfocusingonthemanagementofstrategy.Anofficeofstrategymanagementthatispositionedatthelevelofotherseniorcorporatestaffofficesandhasresponsibilityformanagingandcoordinatingallthekeystrategymanagementprocessescanhelpcompaniesrealizethebenefitsfromthisbodyofknowledge. AversionofthisarticleappearedintheOctober2005issueofHarvardBusinessReview. ReadmoreonBalancedscorecard orrelatedtopics Growthstrategy, Strategyformulation, Performanceindicators andNorthAmerica RobertS.KaplanisaseniorfellowandtheMarvinBowerProfessorofLeadershipDevelopment,Emeritus,atHarvardBusinessSchool.HismostrecentHBRarticlesinclude:“InclusiveGrowth:ProfitableStrategiesforTacklingPovertyandInequality”(withGeorgeSerafeimandEduardoTugendhat),“HowtoPayforHealthCare:TheCaseforBundledPayments”(withMichaelE.Porter),and“HowtoSolvetheCostCrisisinHealthCare”(withMichaelE.Porter). DN DavidP.NortonisafounderanddirectorofthePalladiumGroupandisco-authorofTheBalancedScorecard. Tweet Post Share Save Print ReadmoreonBalancedscorecard orrelatedtopics Growthstrategy, Strategyformulation, Performanceindicators andNorthAmerica PartnerCenter Diversity Latest Magazine Ascend Topics Podcasts Video Store TheBigIdea Data&Visuals CaseSelections