The Office of Strategy Management - HBS Working Knowledge

An office of strategy management, or OSM, is intended to close that gap. It is typically a new unit at the corporate level of an organization, ... TheOfficeofStrategyManagement 26Mar2006Research&Ideas TheOfficeofStrategyManagement byMarthaLagace Manyorganizationssufferadisconnectbetweenstrategyformulationanditsexecution.Theanswer?HBSprofessorRobertS.KaplanandcolleagueAndrewPatemanargueforthecreationofanewcorporateoffice. LinkedIn Email "Whyistheresuchapersistentgapbetweenambitionandperformance?"askRobertKaplanandDavidP.Nortonin"TheOfficeofStrategyManagement"intheOctober2005HarvardBusinessReview."Thegaparises,webelieve,fromadisconnectinmostcompaniesbetweenstrategyformulationandstrategyexecution....[But]itdoesn'thavetobelikethis." Successfulcompanies,theywrite,areestablishinganewcorporate-levelunitcalledtheofficeofstrategymanagement.Thisunitisdistinctlydifferentfromthestrategicplanningunitandplaysauniquecoordinatingroletohelpbringstrategytofruition. Forthise-mailQ&A,Kaplan,theBakerFoundationProfessoratHarvardBusinessSchool,teamedupwithcolleagueAndrewPateman,PrincipaloftheBalancedScorecardCollaborative. MarthaLagace:YouandDavidNortonhavehighlightedsometroublingstatisticsabouthowstrategyformulationissooftendisconnectedfromstrategyexecution.Whatisanofficeofstrategymanagement,andwhenandwhyisitneeded?Whatareitstypicalactivities?Howitisdistinctfromastrategicplanningunit? AndrewPatemanandRobertKaplan:Thestatisticssurroundingthesuccessthatorganizationshaveinexecutingstrategyislow.Ourarticle,"TheOfficeofStrategyManagement,"usingdatafromaBainConsultingstudy,notesthatsevenoutofeightcompaniesinaglobalsampleof1,854largecorporationsfailedtoachieveprofitablegrowth,thoughmorethan90percenthaddetailedstrategicplanswithmuchhighertargets.Ourownworkwithclientssupportstheexistenceofapersistentgapbetweenthestrategicgoalsorganizationssetforthemselvesandtheresultstheyachieve. Overthepastfifteenyears,wehavestudiedtherootcausesofthisdisconnectbetweenstrategyandperformance.Wehavelearnedthatmostorganizationsdonothaveastrategyexecutionprocess.Manyhavestrategicplans,butnocoherentapproachtomanagetheexecutionofthoseplans.Consequently,manykeymanagementprocessesremaindisconnectedfromstrategy.Wehavealsolearnedthat: (a)Manyorganizationsdon'thaveaconsistentwaytoevendescribetheirstrategy,otherthaninalargestrategicplanningbinder.Webelievestronglythatorganizationsneedtofindaconsistent,coherentwaytotranslatetheirstrategyintooperationalterms. (b)Sixtypercentoftypicalorganizationsdonotlinktheirstrategicprioritiestotheirbudget,virtuallyensuringthatkeystrategicinitiativesdonotgetfundedandresourcesmaynotbesuppliedtodeliveronthestrategicplan. (c)Two-thirdsofHRandITorganizationsdevelopstrategicplansthatarenotlinkedtotheorganization'sstrategy.Thisisextraordinary. (d)Seventypercentofmiddlemanagersandmorethan90percentoffront-lineemployeeshavecompensationthatisnotlinkedtothestrategy. (e)Mostdevastating,95percentofemployeesinmostorganizationsdonotunderstandtheir[organization's]strategy. Inshort,thereisoftenachronicdisconnectinorganizationsbetweenstrategyformulationandstrategyexecution. Anofficeofstrategymanagement,orOSM,isintendedtoclosethatgap.Itistypicallyanewunitatthecorporatelevelofanorganization,overseeingallstrategy-relatedactivities—fromformulationtoexecution.Itisnotintendedtoperformallofthiswork,buttofacilitatetheprocesssothatstrategyexecutiongetsaccomplishedinanintegratedfashionacrosstheorganization.Typically,astrategicplanningunithaslittleornoinfluenceovertheprocessofexecutingthestrategyithelpedtocreate.Inourview,oneunitshouldfacilitatebothstrategyformulationandexecutionprocess,makinganenhancedstrategicplanningunitanaturalhomefortheOSM. TheOSMcanbecomeanareawherefutureleadersgainastrategicperspectiveontheorganization. SinceourfocusreflectsthepreeminenceoftheBalancedScorecardasthevehiclethroughwhichstrategyisdescribedandexecuted,anOSMistypicallyanoutgrowthofagoodscorecardprogram.Suchaprogramtendstoraisecommonquestions:Howdoweusethesescorecardstoaligntheorganization?Howcanweensurethatourpeopleunderstandourstrategy?Howdoweusethescorecardtoimprovehowweconductourmanagementmeetings? AnOSMtypicallyemergeswhentheBalancedScorecardteamincrementallyandorganicallyassumesmoreandmoreresponsibilitiesonitsowninitiative—responsibilitiesthatwereformerlynotperformedbyanypersonorunitintheorganization.So,earlyontheBSCteamfillsagapinthemanagementoftheorganization.WhilemanyofourexamplesarefromBalancedScorecardusers,thesameprinciplesofstrategyexecutionapplytonon-scorecardusers. Basedonourresearchandclientwork,wecreatedamodeltodescribetherolesandresponsibilitiesofanOSM,asdescribedintherecentHarvardBusinessReviewarticle.SomeoftheserolesareownedbyanOSMoutright,suchasscorecardmanagementandcascading.Thereareotherroleswhereitplaysacoordinatingfunction,essentialtoensuringthatstrategyinformscriticalprocesseslikebudgeting,operationalplanning,andperformancemanagement. Q:YourarticlediscussesChryslerGroupandtheU.S.ArmyasdesigningsuccessfulprogramsthatextendedtheirBalancedScorecardwork.IsaBalancedScorecardinitiativenecessaryasafirststepbeforecreatinganOSM?Ifnot,howmightacompanysetupanOSMwithoutit? A:ABalancedScorecardisanimportant,thoughnotanecessary,firststepincreatinganOSM.First,theprincipleswedescribeabouttheneedforanOSMareuniversal—organizationsneedtoimprovehowtheylinkstrategyformulationandexecution,whethertheyusetheBalancedScorecardornot.Organizationsfailingtomakethislinkaredestinedtobeamongthefailureswementionedabove. WefeelthatBalancedScorecardusershaveadistinctadvantage.Theseorganizationshavefoundwaystodescribeandcommunicatetheirstrategiesusingpowerfulandtestedapproaches.Theyhaverecognizedtheneedtomakestrategyexecutionarecognizedcompetencyoftheorganization,distinctfromsimplyhavingagoodapproachtoformulatingstrategy. Werecognizethattherearedifferentapproachesbeingusedtomanagestrategy.AnOSMcouldeasilybeestablishedinanon-scorecardorganizationusingtheidenticalapproachasscorecardusers.Thesamesetofquestionsapply:Whatisourstrategy?Howisitbeingmeasured?Areweallocatingresourcestosupportourstrategy?Doourpeopleunderstandit?Arewehavingoutstandingsessionstodiscussandmonitorourstrategy?Howdowepullallofthistogetherintoacoherentprocess? Webelievethatstrategymustbemanagedexplicitly,likeanyothermajorprocessinanorganization. Q:YouwritethatanOSMcanserveineffectastheCEO'schiefofstaff.Inatypicalorganization,howmanystaffwouldbeinanOSM,whataretheircareerbackgroundsand/ortrainingthatmakethembestforthisfunction,andwhataretheirrolesvis-à-visotherimportantunitssuchasfinance,HR,marketing,andsoon? A:AtypicalOSMinalargeandcomplexcompanyseemstorequireaboutsixtoeightfull-timepeople.Typically,thesepeoplearenotnewhiresandconsistofthescorecardteamandelementsofthestrategicplanninggrouporfinance.TheOSMismostdefinitelynotnewbureaucracyoroverheadforanorganization.WehaveseenmanyOSMsthataresmaller,consistingofbetweenthreeandfivepeople. OSMstaffingrequiresamixoftalent.TheOSMcanbecomeanareawherefutureleadersgainastrategicperspectiveontheorganization.Clearly,peopleabletounderstandandthinkinstrategictermsarecritical.Theyneedgoodinterpersonalskillssincetheymustinteracteffectivelyandauthoritativelywithseniorbusinessunitsandfunctionalheads.Projectmanagementexperienceisdesirabletooverseescorecardprojectsandinitiativemanagement.Operationalexperienceisalsovital,sincetheessenceofgoodstrategyexecutionisabout"gettingthingsdone"andpeoplewhounderstandtherelationshipbetweenstrategyandoperationalrealitywillmakeenormouscontributionstotheOSM. AnOSMnaturallyinteractswithotherbusinessunitsandfunctions.Inthisregard,ithastworoles.First,itprovidessupporttooperatingunitstoensuretheyhavethetoolsrequiredtosupportthecorporatestrategy.Second,itensuresthatstrategyinformstheworkofthekeyfunctionalunitslikeHRandfinance,tonametwokeyplayers.Forexample,inatypicalorganizationthebudgetingprocessispartitionedfromthestrategydevelopmentprocess.Theresultisthatkeystrategicinvestmentsoftengetlostinthepressuresofdailyoperationalmanagement,orworse,thebudgetbecomesthedefactostrategyoftheorganization.AgoodOSMwillcollaboratewiththeCFOto"integrate"strategyintooperationalplanningandbudgeting.WehaveyettoseeaCFOresisttheefforttomaketheplanningprocessmorestrategicandusefulfortheorganization. Q:YouwritethatOSMsare"facilitatingorganizations,notdictatingones."Whiletheywouldseemtocreatetheriskofmoretop-downmanagement,theoppositeeffecthappens.Couldyougivesomeexamplesofpositiveeffectsincompaniesyou'veseen?WhatactivitiesshouldOSMsnotbeinvolvedin? A:Webelievethatstrategymustbemanagedexplicitly,likeanyothermajorprocessinanorganization.Inmostorganizations,thisprocesseitherdoesnotexistorisincomplete.Shareholdervalueisleftonthetable.ThepurposeofanOSMistounlockunrealizedvaluebymakingstrategyexecutionadistinctandrecognizedcompetencyinanorganization.Itcanonlydothisbyenablingothers—operatingunitsandfunctions—todotheirjobsinawaythatsupportstheorganization'sstrategy.Wedon'tbelievethatthiswillalwaysmakeeverybodyhappy,sinceanOSMishelpingtoestablishanewmanagementdiscipline,whichmayormaynotbewelcomedbyall. Thepositiveeffectsarebeingmostkeenlyfeltintheorganizationsweciteinourarticle—theArmy,ChryslerGroup,andCanadianBloodServicessincetheyaretheearliestadopters.AstheconceptoftheOSMmaturesandaswehearmoreandmorestories,wewillbeabletoaddtothislistofstoriesthatconfirmanOSM'sroleasafacilitatingorganization. Asforactivitiesnottobeinvolvedin,theOSMshouldnotbeseenasdictatingstrategyeitheratthecorporateorbusinessunitlevels.Itshouldnotattempttotakeoverfunctionsalreadybeingdonebyotherfunctionalunits,suchasfinance,IT,andHR.Itsroleistofacilitate,coach,andcoordinate. Trending 25Jan2022 Research&Ideas MoreProofThatMoneyCanBuyHappiness(oraLifewithLessStress) 25Feb2019 Research&Ideas HowGenderStereotypesKillaWoman’sSelf-Confidence 01Jul2015 Research&Ideas ABankThatTakesParmesanasCollateral:TheCheeseStandsaLoan 17May2017 Research&Ideas MinoritiesWho'Whiten'JobResumesGetMoreInterviews 31Mar2022 Op-Ed Navigatingthe‘BermudaTriangle’inProfessionalServices RobertS.KaplanSeniorFellowMarvinBowerProfessorofLeadershipDevelopment,EmeritusContactSendanemail→MoreArticles FindRelatedArticles CorporateStrategy Signupforourweeklynewsletter Interestedinimprovingyourbusiness?LearnaboutfreshresearchandideasfromHarvard BusinessSchoolfaculty.