Strategy realization competence as an integral part of a successful organization – role and responsibilities of a Strategy Office.
According to empirical investigations, the great majority of organizations fail in successfully realizing their previously defined strategies. Thus, last but not least, a study of the renowned “Harvard Business Review” observed that at an average profit-oriented companies only reach 60% of the financial results they wanted to obtain with their strategy. Consequently the question comes up if these unsatisfactory results must be attributed to an inadequate definition of their strategy or their incorrect realization.
Deeper investigations provide a clear answer: Whereas 88% of more than 1,200 polled organizations pass through a formal strategic planning process and the vast majority was satisfied with the subsequent phrasing of their own strategy, the respondents, however, criticize the weak aspects in the practical implementation of the strategy1) . The American magazine Fortune2) comes to a similar conclusion and summarizes its survey with the statement that only less than 10% of the actual formulated strategies are efficiently put into practice.
Consequently, experts and organizations involved in management also focus their attention more and more on the need of efficient strategy implementation. The increasing importance of this specific management discipline could be observed above all at the beginning of the current global economic crisis when polled top managers declared the “excellence in strategy implementation” the most important concern of crisis management3).
Robert Kaplan, professor at the Harvard Business School, and Dr. David Norton already focused their research on the central importance of an efficient strategy implementation in the early 90s. They invented the Balanced Scorecard concept (BSC) as management tool for the implementation of strategies. However, as it soon turned out that a tool like the BSC alone is not sufficient to effectively introduce a strategy, Kaplan and Norton analyzed current strategic processes as practised by successful companies. They wanted to understand in detail how these companies integrated the management tool BSC in a holistic management discipline. This investigation of “Best Practice” for many years led to the development of the strategy management system with 6 interconnected phases. In their latest book “The effective Strategy Process”, Kaplan and Norton present a closed strategy circuit that helps the organizations to assure their strategic aims also in the long run due to an effective implementation4).
The first phase describes the strategy development process, ranging from the definition of the mission, the vision and the values, to the analysis of the relevant internal and external company environments to the classical methods like SWOT and scenario planning. In the second phase, the circuit passes to the strategy implementation process with the Balanced Score Card, which in the third phase is broken down to all organization units and levels. The strategic process and its components are linked to the operative planning in the fourth phase, so that adapted business processes, an adequate sales and resources planning and budgeting can support the strategy implementation process in an optimal way. The management of the critical strategic initiatives is analyzed in regular strategy evaluation meetings and must be adapted if necessary (phase5). In the last phase (“Testing and continuous development”), usually some experience in the implementation of the original strategic hypothesis could already be gathered, so that the first provisional results can be analysed and the respective “regulating screws” be adjusted. Furthermore, at this point relevant changes in the company or competitive environment are observed (crisis, innovation, evolution of resources, changes in the market or structure of the competition, etc.) that could have effects on the long-term strategy, so that the circuit of this management system is closed or starts again from beginning.
The 6-phase management system according to Kaplan / Norton
The observation and assessment of this rather extensive strategy management system will lead inevitably many companies to ask themselves if such a process is necessary with all its complexity and if thus the administrative capacity of above all smaller organizations is not overcharged.
Also in this case, empirical analysis provide a clear answer: 70% of the companies that introduced a formal process for strategy implementation obtain financial results above average compared to other companies of the same sector5). They have succeeded in linking isolated strategic processes and individual, often uncoordinated management tools and consolidating them in an integrated system, thus achieving a bigger part of their strategic aims.
One the importance of a consistent strategy management system for the achievement of outstanding company results is beyond doubt, the question must be resolved who eventually is to be made responsible for the implementation and effective control of this strategy process.
Due to its manifold areas of responsibility and its subsequent scarce time resources, the top management will hardly be able to assume this task in a professionally correct and responsible way.
On the other hand, the critical impact and importance of a central management system that transcends department and area boundaries forbid the assignment of this responsibility to lower hierarchic levels.
If the continuous control of a strategy process, however, remains without a responsible “owner” who holds a strong and generally accepted position in the top management, the achievement of the strategic aims, mostly set up with enthusiasm, generally falls very much back behind the respective expectations. An analysis of all the Balanced Scorecard projects that the TANTUM GROUP supports worldwide confirms this evaluation in a drastic way: More than 65% of the strategy implementation projects that have been introduced with big efforts and a broad support from the top management, peter out within the first 12 months after completion of the BSC to become a simple KPI reporting system or cease at all6).
By comparison, the vast majority of the companies that have successfully introduced an integrated strategy process, feature a new management position, the “Chief Strategy Management Officer” (CSMO) or “Officer of Strategy Management” (OSM) or have created a new company area with the “Strategy Office”.
Whereas this new cross-departmental sector at the beginning was only in charge of the development of strategy cards and BSC, its area of responsibility expanded over time, and thus its importance and acceptance in the organization, also due to its increased practical experience.
Nowadays, companies like Giesecke & Devrient (Germany), Serono (Switzerland), Nordea (Sweden), Orang (GB), Ricoh (USA) and many other well-known companies assign their strategy offices basically three functions with extensive subareas: the architect, the process officer and the integrator.
On the one hand, the strategy manager acts as “a r c h i t e c t” of a holistic management system and its individual components. He develops, defines and communicates partial processes that are critical for the general strategy process. These partial processes either do not yet exist or have been applied in different company areas in an uncoordinated and irregular way due to specific concepts and conventions. These partial processes and tools, as for example the strategy card and its respective Balanced Scorecard, that have been developed and set up for the company-wide strategy process, must be transferred into a coherent and interrelated management system. To guarantee a synchronized and smooth operative capacity of the own management system, the strategy office should on the one hand follow the 6-phase-best-practice circuit suggested by Kaplan/Norton, on the other hand, however, it is absolutely necessary to adapt the individual components and the intended complexity degree of the planned management system to the structure, culture, experience and resources of the own company.
In order to prevent a break between the former architecture (strategy and process development) and the successive strategy implementation, the second fundamental function should also be clearly and consistently assigned to the strategy office: As central “p r o c e s s o w n e r” it is the driving force for important activities within the continuous strategy management. These include the continuous development or adjustment of the strategy and the Balanced Scorecard, the coherent and coordinated break down of the higher-ranking company strategy in the vertical (business areas) and horizontal (functional areas) business units to assure synergetic strategy effects, the preparation and realisation of regular strategy evaluation meetings and, last but not least, the control of the introduction of improvement potentials that have been decided in the above mentioned strategy meetings.
As a large number of partial processes are led on their own authority in the respective departments, the strategy office, last but not least, also plays the role of the “i n t e g r a t o r”. Dr. David Norton calls “strategy” a “team game”; as ultimately all the employees are to be involved in the implementation of the strategy, the strategy office must coordinate the diverse activities in a clear and target-oriented way. The process begins with the integration of the operative planning of individual business units in the strategy and needs the warrant and coordination of company resources (finance and personnel) for the realisation of the strategy initiatives. This requires a close cooperation with the company managers and the financial management. The strategy support must also be secured in the different functional units (HR, IT, Marketing, Finance, etc.), and the implementation of the strategy at all hierarchically lower business levels that represent an interface to the market must be continuously adapted and coordinated. This is valid in particular for the monitoring of the continuous strategic initiatives and the definition of the necessary subsequent initiatives. The coordination of the successive strategy communication and its implementation results as central task for the motivation and continuous increase of the employees’ strategic knowledge is as much a responsibility of the “CSMO / Strategy Office” as the collection, preparation and target-oriented distribution of “best practices” that have been developed in certain areas (information management).
Wherever the responsibility focus of the strategy management lies, its critical key role in the company is beyond doubt. Therefore those organizations that already have some experience with their own strategy office acknowledge the enormous contribution of a competent “strategy manager” and his team to a sustainable increase of the company value7). The vast majority of the polled companies even plan to continue expanding the responsibilities and therefore also the staff structure of their respective strategy offices7).
A good example of an efficient strategy management is the experience of Roy Barnes, Senior Vice President Strategy of Marriot Vacation Club International (MVCI). Worried about the prevailing culture with a department limited perspective and uncoordinated area strategies, the Top Management decided to introduce BSC and a strong and continuous strategy process. The first priority was to make all employees share a common understanding of the superordinate strategy and focus the business activities of all areas and the attention of the employees on the central strategy in a cross-functional approach. Roy Barnes’ “Office of Strategy Management” (OSM) assumed the coordination of this strategy process. He wanted to avoid at any rate that a central Strategy Office defined a strategy and strategy process and presented it then to the business units for implementation. In fact, the “OSM” team was rather supposed to develop and promote the intensive strategy dialogue as internal consultant in the whole company and support the decentralized strategy implementation. The strategic decisions themselves, however, must be taken by the executive organs, according to Barnes’ convictions.
In MVCI the same is valid for the management of the institutionalized knowledge and “best practice” know-how: “The Strategy Office does not develop any “best practices”, it is the catalytic converter of new successful ideas!” This, however, requires more than only the set-up of a pool of ideas and its availability for the involved personnel. The employees must be actively convinced of the use of such “best practices”. But also for this process the “OSM” at MVCI considers itself only a coordinator. “The “OSM” deploys the managers or employees who have developed and put into practice useful ideas, with the aim to pass these on themselves to the staff of other departments and areas” 8).
At one point, the Top Management of the analyzed successful organizations absolutely agreed: In spite of the effective and satisfactory achievements of the new company function, the top management did not at any rate delegate the control of this vital strategy process without keeping its own superordinate responsibility. The opposite was the case: Each individual top management of the meanwhile 120 companies that have been admitted as “Strategy focused organizations (SFO)” in the “Balanced Scorecard Hall of Fame” actively supported the build-up and implementation of its own management system and helped its strategy manager to a permanent position within the management team9).
Strategy management is and will remain an executive function!
Due to the extensive insights that we could gain into the practical processes of the companies, we want to make the following conclusive recommendation: Companies that have decided to build up an own Strategy Office as competence centre should make use of the substantial experience of “best practice” users to shorten considerably tedious learning and correction phases and be able to achieve earlier the expected value contributions for their own company.
Manager Tantum Group Central and East Europe
We are an international and globally active consultancy and accompany our customers during the implementation and continuous adaption of innovative strategic management systems. For many years we have maintained an intensive cooperation with the developers of the Balanced Scorecard, the Harvard Business School professor Robert S. Kaplan and Dr. David P. Norton, who assess us as experts in our investigation and training activities as well as in our consultancy service. In 2004, Dr. David P. Norton founded the tantum Group GmbH. Our range of consultancy services and trainings allows us to contribute, together with our customers, to the increase in the long run of the performance and value of their companies. Our way of acting conforms to the best practice principle. This means: The long lasting experience and cooperation with leading companies has shown us that only a combination of theory and practice can lead to success.
About the author:
Georg Reygers is the General Manager of the Tantum Group Germany and Central Europe. He has a long and international practical experience as a consultant in the Balanced Scorecard area and in Strategy and Performance Management.