FINANCE

HBR Excerpt: The Office of Strategy Management

By Robert S. Kaplan and David P. Norton

May 31, 2006

Editor's note: The following is excerpted from The Office of Strategy Management, by Drs. Robert S. Kaplan and David P. Norton and published by the Harvard Business Review in October 2005. Dr. Norton is an advisor to the Cognos Innovation Center for Performance Management.™

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% annual real growth in revenues and earnings while earning their cost of capital. 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.

The organizations that have managed to sustain strategy focus have typically established a new unit at the corporate level to oversee all strategy related activities, an office of strategy management (OSM), as we call it.

What good OSMs do

Through research into Balanced Scorecard best practices, 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 are made at the annual strategy-planning meeting get translated into the company's strategy map and Balanced Scorecard.

Align the organization. The OSM oversees the process of developing scorecards and cascading them through the levels of the organization. It defines the synergies to be created through cross-business behavior at lower organization levels.

Review strategy. The underlying hypotheses of the company's strategy can be tested and new actions initiated.

Develop strategy. The OSM can act as a filter for new ideas that come from within the organization.

Communicate strategy. The OSM should always take the lead in crafting strategy messages delivered by the CEO, because one of the most effective communication channels is having each employee hear about strategy directly from the CEO.

Manage strategic initiatives. 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.

Integrate strategic priorities with other support functions. The OSM should play a consultative and integrative role with the respective functional departments.

Dramatic performance improvements

Many organizations have achieved dramatic performance improvements by sustaining an focus on implementation of strategy. We have captured and codified a body of knowledge from these successful organizations that provides the foundation for an emerging professional 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 the responsibility for managing and coordinating all the key strategy management processes can help companies realize the benefits from this body of knowledge.