Editorial Reviews. About the Author. Robert S. Kaplan is the Baker Foundation Professor at the Kindle Store; ›; Kindle eBooks; ›; Business & Money. by Robert S. Kaplan, David P. Norton. Owing to execution failures, companies realize just a fraction of the financial performance promised in their strategic plans. It doesn't have to be that way, maintain Robert Kaplan and David Norton in The Execution Premium. Read "The Execution Premium Linking Strategy to Operations for Competitive Advantage" by Robert S. Kaplan available from Rakuten Kobo. Sign up today and.
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The Execution Premium: Linking Strategy to Operations for Competitive Advantage. Format. Ebook, Hardcover Book. The execution premium: linking strategy to operations for competitive advantage. Edition/Format: eBook: Document: EnglishView all editions and formats. The execution premium: linking strategy to operations for competitive advantage by DAISY for print-disabled Download ebook for print-disabled (DAISY).
The book ends with a discussion of the office of strategy management -- a corporate function that embodies the process that is discussed in this book. In that regard I am concerned about objectivity as the book is written to show all the work that needs to be done, begs the question who will do it, says that its the OSM that will do it and does not disclose that one of the authors consulting companies trains and certifies people to be in the OSM.
I am not sure that centralizing these tasks into yet another corporate - non-operating function is the right idea and the commercial incentive implicit in the recommendation needs to be taken into consideration. It is not a huge deal, but something that the reader needs to understand and be aware of in terms of a bias. Professor Kaplan and Dave Norton once again prove that they understand and appreciate the systemic nuances of business and the value premium of not only having a good plan but marshalling the resources human and economic needed to execute and deliver on a plan's promise.
Bob Kaplan and David Norton's enthusiasm for work done well is palpable throughout this latest Balanced Scorecard book.
I was introduced to the Balanced Scorecard a decade and a half ago in an early Harvard U. They have never rested on the laurels of a fantastic business idea and continue to advance and refine the Balanced Scorecard system. As a student and practitioner on themes like Activity Based Costing, Productivity, the Balanced Scorecard and Strategy, I want to praise the clarity of Dr Kaplan in combining and linking the strategy all the way down to the scorecard of the organization.
In his book "The Execution Premium" he takes the reader step by step to understand the link between the strategy frameworks to its execution. It is a perfectly designed management system that shows the relationship of very important decisions such as: Develop people and technology as to have a competitive team; Encourage Analytical approach to understand processes and data driven decisions; Develop management leadership to provide vision and alignment; Understand that everything we do in the organization is determined solely by our customers and finally to teach everyone in the organization that a primary objective is to create value.
The Execution Premium will help any manager to successfully execute strategies and allocate resources to those paths which will create maximum value. Kindle Edition Verified download. This book is an excellent summary of the approach to strategic management professors Robert Kaplan and David Norton. The book suggest a central planning, top-down approach to strategy formulation and implementation that may work well in Soviet Russia, but honestly disconnected with reality of today's chaotic, innovation driven, and dynamic companies.
Tech companies especially need to avoid this type of philosophy Henry Mintzberg's "Rise and Fall of Strategic Planning" does a good job of revealing pitfalls of the approach suggested in this book. What disappoints me most about Kaplan's "Strategy Map" is its lack of specificity on actually exposing the company's strategy - content in a strategy map is so vague and broad it could describe any company out there. For example a strategic process is to "assure operations are efficient and effective.
Is any company going to describe the opposite? In other words, the strategy map fails to communicate what we are NOT doing Throughout all these years, they never questioned their own reasoning or admitted limits to their ideas, although each new book incorporated new ideas into their framework and simply said that their framework works with those new ideas In reality, there's a lot of self-conflicting ideas in here.
Try to implement using this and you'll see for yourself. It is an excellent book that help you in the process of developing the strategy and communicate it in a very simple form. With the use of BSC, the strategic maps could be linked to operations with specific measurements for each goal so you can follow up. As director, it is an excellent tool to execute the strategy in the operations of any business. One person found this helpful. The book is more clinical than I like but it offer good structure for strategic planning.
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Evaluate Performance Most organizations conduct a formal performance evaluation at the end of the individual performance management cycle. Ideally, the evaluation should answer the question: have the individual performance goals been achieved? Be sure you make an honest assessment.
There are several techniques that can help you. One of the best known is the STAR technique. Strategy execution PDF Now, more than ever, we need a different way of thinking, a useful way to focus and turn our business strategy into success. In the book, six senior executives from different fields and industries share their vision of Strategy Implementation.
Strategy Communication Reach for the head, heart and hands The communication of business strategy and its execution comes in different shapes and forms: from individual conversations during objective setting over group interactions around the Balanced Scorecard, and from intranet postings to writing a memo regarding a strategy shift. Strategy communication is crucial to strategy implementation success.
Communication of the business strategy and its execution is an essential, ongoing component of your strategy implementation efforts. And although some elements might seem trivial and simplistic on the surface as everyone can communicate to some degree, the reality shows that it demands substantial skill and knowledge to communicate the relevant information to the desired person that results in the required action. Look beyond the send button and shift your focus to the receiving end.
Why do people talk about your business strategy? I will talk about the corporate business strategy… …because I feel smart showing others what I know. Everybody else is talking about it. But if we are honest, we all talk too much and do too little. It might cost us our next promotion.
A great strategy story needs: … a compelling business case that creates enthusiasm and inspires people. Stick to the message and make sure others do too. People need to see how they fit in. The Balanced Scorecard is the best-known technique to do so. Here are some Balanced Scorecard facts and figures: 5.
Kaplan and Dr David P. Norton, but by Art Schneiderman — a fact that I was unaware of until a few years ago. At the time of its conception, Schneiderman worked as an independent consultant for Analog Devices, a mid-sized semi-conductor company.
Subsequently, Kaplan and Norton included anonymous details of this use of the Balanced Scorecard in their article on the Balanced Scorecard. The initial high-profile articles and this highly successful book have made the BSC well-known, but perhaps also wrongly led to Kaplan and Norton being seen as the creators of the Balanced Scorecard concept.
So if you are a Scorecard fan, give credit to Robert Kaplan and David Norton, the founding fathers of modern strategy implementation thinking, for making it common knowledge. But thank Art Schneiderman for conceptualizing the Balanced Scorecard itself. Foundations of the Balanced Scorecard While the term and the concept of the Balanced Scorecard was invented by Art Schneiderman and made famous by Kaplan and Norton, the roots of performance management as an activity go further back in time.
Management historian Alfred Chandler points out that early performance management practices go right back to the early 19th century and the emergence of complex organizations.
Did you know that the Balanced Scorecard is the sixth most used management instrument in organizations today? The Scorecard provides a framework for translating an abstract strategy into specific, concrete objectives, measures, indicators and actions. A great Balanced Scorecard breaks a business strategy down into specific and measurable chunks. It also keeps the long-term strategic goals visible on the radar.
Moreover, 85 percent of executive teams spent less than one hour per month discussing strategy, with 50 percent reporting that they spent virtu- ally no time on strategy discussions. Executives relied on local, tactical operating systems such as budgets for managing finances, management- by-objectives MBO systems for motivating employees' performance, and decentralized IT, marketing, and sales plans.
Companies had no sys- tem explicitly designed to manage the implementation of strategy. We conducted a follow-up survey in , receiving responses from performance management professionals about the systems their or- ganizations used to manage strategy execution.
The survey results, sum- marized in Figure , had some similarities with the survey but also significant differences. The similarities occurred among the 46 percent of respondents who reported that they still did not have a formal strategy ex- ecution system; 73 percent of these reported average to below-average performance of their strategies, a percentage consistent with those re- ported in prior strategy execution surveys.
But 54 percent of respondents now reported that they had a formal process to manage strategy execu- FIGURE Organizations with a formal strategy execution process outperform organizations without one Do you have a formal strategy execution process in place? Describe your organization's current performance. March Having a for- mal strategy execution system made success two to three times as likely as did not having such a system.
Figure , drawn from that survey, illustrates the differences in the use of six strategy execution processes between companies with and with- out a formal strategy execution system: State-of-the-art practices Do you have a formal management process in place? Manage a limited number of key strategic initiatives Communications about the strategy J ,,, Reviews: Service-level agreements B Source: Survey of peliormance management professionals, sse Research, A survey conducted by Cranfield University in found that 46 percent of organizations use a formal process of performance manage- ment.
A study sponsored by the U. In part, this gap between strat- egy and operations stems from the large number of diverse tools for strategy formulation and operational improvement that have been introduced dur- ing the past thirty years.
Strategy development starts with tools such as mission, values, and vision MVV statements, along with external com- petitive, economic, and environmental analyses, which are summarized into statements of company strengths, weaknesses, opportunities, and threats abbreviated as SWOT. Strategy formulation methodologies include Michael Porter's five forces and competitive positioning framework, the resource-based view of strategy, core competencies, disruptive strategies, and blue ocean strategies.
Companies also use scenario planning, dynamic simulations, and war-gaming to test the robustness of their strategies. Strategy maps and Balanced Scorecards help companies translate, com- municate, and measure their strategies.
Some companies use the "catch- ball" component of the Japanese hoshin kanri policy-deployment process to cascade high-level strategic objectives to specific goals and targets for operating departments, followed by MBO systems to set goals for individ- ual employees. For radical process improvements, they deploy reengineering approaches. Business intelligence software offers a myriad of tools to support strategy planning and the design of customized dashboards to facili- tate operational improvement programs.
Companies use sophisticated analytic tools to review the performance of their strategies, including customer relationship management software and analytic modeling to capture and profile customer behavior. Activity-based costing is used to assess product and customer profitability, key indicators of strategy success. It is good that companies now have a large number of strategic and operational tools to choose from, but they still lack a theory or framework to guide the successful integration of the many tools.
Companies struggle with the question of how to make these various strategy planning and op- erational improvement tools work together in a coherent system. The imple- mentation of the tools is ad hoc, with little interchange and coordination. The only common or standard feature in most companies' manage- ment systems is the financial budget, which is still being used as the pri- mary tool for coordination, forecasting, and performance evaluation.
Yet even this practice has been questioned. Our initial motivation for intro- ducing the Balanced Scorecard in was to challenge the exclusive use of financial measures for motivating and evaluating performance. More recently, a "beyond budgeting" movement, starting in Europe and migrat- ing to the United States, has severely criticized the use of budgets both to plan for the future and to evaluate past performance.
Given the myriad strategy and operational management tools now available, we believe that companies can benefit from taking a systems approach to link strategy with operations. Having a comprehensive and integrated management system can help companies overcome the difficulties and frustration that most of them experience when attempting to implement their strategies- particularly new, transformational strategies.
The system has six major stages. Stage 1: Managers develop the strategy using the strategy tools described in the preceding section. Stage 2: The organization plans the strategy using tools such as strategy maps and Balanced Scorecards. Stage 3: Once the high-level strategy map and Balanced Scorecard have been articulated, managers align the organization with the strategy by cascading linked strategy maps and Balanced Scorecards to all organi- zational units.
They align employees through a formal communication process and link employees' personal objectives and incentives to stra- tegic objectives.
With all organizational units and employees aligned with the strategy, managers can now plan operations using tools such as quality and process management, reengineering, process dashboards, rolling forecasts, activity-based costing, resource capacity planning, and dy- namic budgeting.
Srage 5: As the strategy and operational plans are executed, the enter- prise monitors and learns about problems, barriers, and challenges. This process integrates information about operations and strategy in a carefully designed structure of management review meetings.
Stage 6: Managers use internal operational data and new external envi- ronmental and competitive data to test and adapt the strategy, launching another loop around the integrated strategy planning and operational execution system. We briefly describe each of the six stages in the integrated manage- ment system next, and explicate them fully in separate chapters in the re- mainder of the book. Develop the Strategy The integrated management system begins with managers developing the strategy.
During this process, companies address three questions: What business are we in, and why? Clarify your mission, values, and vision: Executives begin strategy development with an affir- mation of the organization's purpose mission , the internal com- pass that guides its actions values , and its aspiration for future results vision.
The MVV statements establish guidelines for for- mulating and executing the strategy. What are the key issues? Conduct strategic analysis: Managers review the situation in their competitive and operating environ- ments, especially major changes that have occurred since they last crafted their strategy.
Three sources provide input into this update: The executive team develops and communicates a set of guide- lines, called a strategic change agenda, that explains the need for the changes in the strategy.
How can we best compete? Formulate the strategy: In the final step, executives create a strategy by addressing these issues: What are the technology enablers of the strategy? Chapter 2 contains a detailed description of the three strategy devel- opment processes: Plan the Strategy In this stage, managers plan the strategy by developing strategic objectives, measures, targets, initiatives, and budgets that guide action and resource allocation.
Companies typically address five questions in this stage: How do we describe our strategy? Create strategy maps: A strategy encompasses various dimensions of organization change, from short- term productivity improvements to long-term innovation. A strategy map provides a one-page visual representation of all the strategic dimensions, which we now call strategic themes. Companies have found it difficult to manage the simultaneous performance of the fif- teen to twenty-five objectives on a typical strategy map.
They now cluster related objectives into four to six strategic themes that rep- resent the major components of the strategy. By building a strategy map around a collection of strategic themes, executives can sepa- rately plan and manage each of the key components of the strategy but still have them operate coherently.
The themes, which operate across functions and across business units, also support the bound- aryless approach necessary for successful strategy execution.
How do we measure our plan? Select measures and targets: The overall value gap, typically defined by the ambitious vision statement articulated during strategy develop- ment, is split into gaps that each strategic theme must close over three to five years.
What action programs does our strategy need? Choose strategic initiatives: Strategic initiatives are action programs aimed at achieving targeted performance for the strategy map objectives.
Initiatives cannot be looked at in isolation; they must be viewed as a portfolio of complementary actions, each of which must be suc- cessfully implemented if the company is to achieve its theme tar- gets and overall strategy target. How do wefund our initiatives? Executing strategy requires that the portfolios of initiatives be executed simul- taneously in a coordinated manner. This requires explicit funding for the portfolios of strategic initiatives.
The traditional budgeting system focuses on the resources provided to existing organizational functions and business units, and the accountability and perfor- mance of these units.
The strategic investments, for initiatives that cross functions and business units, must be removed from opera- tional budgets and managed separately by the executive team. Who will lead the execution of the strategy? Create theme teams: Companies are introducing a new accountability structure for exe- cuting strategy through strategic themes. They assign executives to become theme owners, fund them with STRATEX, and support them with theme teams drawn from across the organization. The theme owners and teams provide accountability for and feedback on the execution of the strategy within each theme.
Chapter 3 describes the first two strategy planning processes: Chapter 4 describes the three initiative manage- ment processes: All employees must under- stand the strategy, and they must be motivated to help the company suc- ceed with the strategy. Companies address three questions during the alignment process: How do we ensure that all organizational units are on the same page?
Align business units: Strategy is usually defined at the in- dividual business unit level. But companies typically consist of multiple business or operating units. Corporate-level strategy de- fines how the strategies of individual business units can be inte- grated to create synergies not available to business units that operate independently from each other.
Corporate strategy is de- scribed by a strategy map that identifies the specific sources of synergies. Managers then cascade this map vertically to business units, whose own strategies can then reflect 1 objectives related to their local strategies and 2 objectives that integrate with the corporate strategy and the strategies of other business units. How do we align support units with business unit and corporate strategies? Align support units: Executives often treat support units and corporate staff functions as discretionary expense centers, that is as overhead departments whose goals are to minimize their operating expenses.
As a result, the strategies and opera- tions of support units do not align well with those of the com- pany and business units they are supposed to support. Successful strategy execution requires that support units align their strategies to the value-creating strategies of the company and its business units.
Support units should negotiate service-level agreements with business units to define the set of services they will provide. Creating support unit strategy maps and scorecards, based on the service-level agreements, enables each unit to define and execute a strategy that enhances the strategies being implemented by busi- ness units.
How do we motivate employees to help us execute the strategy? Align employees: Ultimately, employees are the ones who im- prove the processes and run the projects, programs, and initiatives required by the strategy.
They must understand the strategy if they are to successfully link their day-to-day operations with the strategy. Employees cannot help implement a strategy that they are not aware of or do not understand. Managers reinforce the communication program by aligning employees' personal objectives and incentives with business unit and company strategic objectives. Also, train- ing and career development programs help employees gain the competencies they need for successful strategy execution.
Chapter 5 describes the best practices companies use to align organi- zational units and employees to the strategy. Stage 4: Plan Operations A distinguishing feature of the comprehensive management system artic- ulated in this book is its explicit link between long-term strategy and daily operations.
Companies need to align their process improvement activities with strategic priorities. Also, funding for resources to operate the busi- ness must be consistent with the strategic plan. During the operational planning process, managers address the following two key questions: Which business process improvements are most critical for executing the strategy? Improve key processes: The objectives in a strategy map's process perspective represent how strategy gets executed.
The map's strategic themes originate in the key processes defined on the map. Some process improvements are designed to deliver the financial perspective's cost reduction and productiv- ity objectives, whereas others focus on excelling at regulatory and social objectives. Companies need to focus their total quality management, six sigma, and reengineering programs on enhanc- ing the performance of those processes identified as critical for de- livering the desired improvements in the strategy's customer and financial objectives.
After identifying their critical processes for improvement, companies support their process management teams by creating customized dashboards consisting of key indicators of local process performance. The dashboards provide focus and feedback to employees' process improvement efforts. How do we link strategy with operating plans and budgets? De- velop the resource capacity plan: The process improvement plans and the high-level strategic measures and targets on the Balanced Scorecard must be converted into an operating plan for the year.
The operating plan has three components: Companies need to translate their strategic plan's revenue targets into a sales forecast. The beyond budgeting movement, mentioned earlier, advocates that companies contin- ually respond to their dynamic environments by reforecasting quarterly sales for five to six quarters into the future.
Whether done annually or quarterly, any operating plan is launched from a sales forecast, a task facilitated by analytic approaches such as driver-based planning.
Anticipating the need to derive a detailed operating plan, the sales forecast should incorporate the ex- pected quantity, mix, and nature of individual sales orders, pro- duction runs, and transactions. Companies can use a time-driven activity- based costing TDABC model to translate detailed sales fore- casts into estimates of the resource capacity required for the forecast periods.
But its "killer app" is for resource planning and budgeting. Because a TDABC model uses capacity drivers, typically time, to map resource expenses to the transactions, products, and cus- tomers handled by each process, such a model can easily map the forecasts of sales and process improvements to the quantity of resources-people, equipment, and facilities-required to fulfill the plan. Operating and capital budgets: Once managers have agreed on the quantity and mix of resources for a future period, they can easily calculate the financial implications summarized in a fi- nancial profit plan and operating and capital budgets.
The company knows the cost of supplying each unit of resource. Most of the resource capacity represents personnel costs and would be included in the operating expense OPEX budget. The outputs from this process are op- erating and capital budgets that have been derived quickly and analytically from the sales and operating plan. Because the company starts with detailed revenue forecasts and now has the resource costs associated with delivering these forecasts, simple subtraction yields a forecast and detailed profit- and-loss statement for each product, customer, channel, and region.
Chapter 7 describes how to convert a strategic plan into plans for re- source capacity and for operating and capital expenses. Stage 5: Monitor and Learn Once the strategy has been determined, planned, and linked to a compre- hensive operational plan, the company begins to execute its strategic and operational plans, monitor the performance results, and act to improve operations and strategy based on new information and learning.
Companies use operational review meetings to examine departmental and functional performance and to address problems that have arisen or persist. They conduct strategy review meetings to discuss the indicators and initiatives from the unit's Balanced Scorecard and assess the progress of and barriers to strategy execution. By separating the operational and strategy review meetings, companies avoid the pitfall of having short-term operational and tactical issues drive out discussions of strategy imple- mentation and adaptation.
The two meetings address different questions: Are our operations under control? Hold operational review meetings: Companies conduct operational review meetings to review short- term performance and respond to recently identified problems that need immediate attention.
Operational review meetings cor- respond to the frequency with which data are generated on opera- tions and the speed at which management wants to respond to sales and operating data as well as to the myriad of other tactical issues that continually emerge.
Operational review meetings are typically departmental and functional, bringing together the ex- pertise and experience of employees to solve the issues of the day in departments such as sales, downloading, logistics, finance, and operations. These meetings should be short, highly focused, data driven, and action oriented.
Are we executing our strategy well? Hold strategy review meetings: Typically, companies schedule strategy review meetings monthly to bring together the leadership team to review the progress of the strategy. The leadership team discusses whether strategy execution is on track, detects where problems are occurring in the implemen- tation, attempts to determine why the problems are occurring, rec- ommends actions to correct the cause, and assigns responsibility for achieving the targeted performance.
If one thinks of strategy and problem solving through the lens of the plan-do-check-act PDCA cycle, strategy review meetings are the check and act por- tions of strategy execution. Theme owners distribute data on the Balanced Scorecard's measures and initiatives in advance of the meeting.
The meeting time focuses on discussion and selection of action plans for the is- sues that have emerged since the last strategy review meeting. Be- cause in-depth discussion of every BSC objective, measure, and initiative would require too much time at each monthly meeting, companies now organize their strategy review meetings by strate- gic themes, covering one or two in depth at each meeting. In this way, they enable each theme and objective to be examined and dis- cussed carefully at least once per quarter.
Chapter 8 presents the structure, frequency, participants, agenda, and actions for operational and strategy review meetings. Test and Adapt the Strategy In addition to frequent operational and strategy review meetings, the company needs to conduct a separate meeting that tests whether its fun- damental strategic assumptions remain valid. The strategy testing and adapting meeting addresses the following funda- mental question: Is our strategy working?
Hold a strategy testing and adapting meet- ing: Periodically, the executive team meets to question and chal- lenge the strategy and, if necessary, adapt it. We believe that every company should conduct a strategy testing and adapting meeting at least annually, and perhaps as often as quarterly depending on the speed of competitive, technological, and consumer dynamics in the industry.
In this meeting, the executive team assesses the per- formance of its strategy and considers the consequences of recent changes in the external environment.
In fact, testing and adapting the existing strategy should be part of the strategic analysis done as part of the first management system process. We treat and list it separately because this process is for modifying an existing strat- egy rather than for introducing a new, transformational strategy, as discussed in Chapter 2.
The meeting to test and adapt an exist- ing strategy closes the loop on the integrated system of strategy planning and operational execution. This meeting should be informed by current external condi- tions via PESTEL analysis and the competitive environment, as previously described. But the company now has, in addition, mul- tiple inputs that describe the successes and ;'ailures of the existing strategy. Activity-based profitability reports summarize profit- and-loss data by product line, customer, market segment, channel, and region.
Executives see where the existing strategy has been successful and where it is failing. They can formulate new ap- proaches to transform losses into profits and expand the scope and scale of existing profitable operations.
A second set of reports shows statistical summaries of the links among strategic metrics. The associations validate and quantify the hypothesized links on the company's strategy map and strategic themes.
Occasionally, when the correlations are zero or opposite in sign to the strategy's expectations, the executive team questions or rejects components of the existing strategy. The strate- gic and operational plans set the stage and establish the information requirements for next period's schedule of operational review, strategy re- view, and strategy testing and adapting meetings.
Chapter 9 provides the details and several case examples of these testing and adapting meetings. The system has many moving parts and interrelationships, and it requires simultaneous coordination among all line and staff units.
Existing processes that are run by different parts of the organiza- tion-such as budgeting by finance, personal goals and communication by human resources, and process management by operations-must be modified and coordinated to create strategic alignment. They must work as a system instead of as a set of uncoordinated processes. In addition, we have proposed some new processes, such as creating strategy maps and Balanced Scorecards that align organizational units and employees with the strategy.
Because these processes are new to most organizations, they have no natural home within the existing structure. Clearly, organizations face a complex task to implement such a complex, interrelated system of mature and newly introduced management processes.
Most organizational processes are assigned to owners who run them and are accountable for their performance. The chief financial officer is the owner of the budgeting process; the vice president of human re- sources runs the employee performance management process; the vice president of quality facilitates total quality management and six sigma improvement processes.
But few organizations identify an individual or department to run the multiple linked processes of the strategy execution system. We have identified the need for a new organizational function, which we call the office of strategy management OSM , to be the process owner of the strategy execution system. The OSM synchronizes the various planning and control processes, which operate at different frequencies. Dashboards and operational con- trol meetings operate daily and weekly, information on strategic measures and initiatives is collected monthly to inform the strategy review meetings, and the organizational scan of the external environment and analytic studies are done quarterly or annually for strategy testing and adapting meetings.
All these cycles must be compatible with and integrated with one another.
The new office of strategy management plays three generic roles sum- marized in Figure First, the OSM, as architect, designs the new strat- egy and operational management processes. The OSM ensures that all the planning, execution, and feedback components are in place and that they are linked in a closed-loop system. The OSM is the owner of many of the key processes in the manage- ment system. The OSM facilitates the execution of processes that cross business and functional lines, including processes to develop the strategy, plan the strategy, align organizational units with the strategy, review the strategy, and test and adapt the strategy.
FIGURE Office of strategy management plays three important roles Define and clarify the philosophy of performance management and the processes required to execute. Define, develop, and oversee the execution of Ensure that processes owned and run by other processes required to manage the strategy. In most organizations, these processes already exist and have owners. But they operate indepen- dently and may not be aligned with the strategy. The OSM serves as an in- tegrator to align all these diverse processes with the strategy.
Chapter 10 closes the book by describing the roles and responsibilities of the new office of strategy management as the architect, process owner, and integrator of the processes embedded within the strategic planning and operational execution management system.
Throughout the book, we describe organizations-located in different re- gions and countries, including North and South America, Europe, India and Japan-that have successfully implemented their strategies. They op- erate in varied industries, such as manufacturing, financial services, con- sumer services, nonprofit, educational, and public sector. Their strategies differ; some produce low-cost commodity products and services, others deliver complete solutions to their customer, and still others innovate with high-technology products.
About the only common element all these diverse successful strategy implementers have in common is exceptional and visionary leadership.
In every example, the unit's CEO led the case for change and understood the importance of communicating the vision and strategy to every employee. Without such strong leadership at the top, even the comprehensive management system we introduce in this book cannot deliver breakthrough performance. In fact, leadership is so important to the strategy management system we believe it to be both necessary and sufficient. The necessary condition comes from our experience with the more than one hundred enterprises around the world who have become members of the Balanced Scorecard Hall of Fame.
In every instance, the CEO of the organizational unit im- plementing the new strategy management system led the processes to de- velop the strategy and oversee its implementation. No organization reporting success with the strategy management system had an unen- gaged or passive leader.
In Stage 2, the executive leader validates the strategy map as an expression of the strategy articulated in Stage 1 and challenges the organization with stretch targets that take all employees outside their comfort zones. In Stage 3, leadership drives alignment of organizational units and is es- sential for communicating vision, values, and strategy to all employees. In Stage 4, leadership supports the cross-organizational unit process improvements. In Stage 5, the leader's openness and skill in running the strategy manage- ment review meeting determines its effectiveness for fine-tuning the strategy throughout the year.
In Stage 6, the leader must allow even a well-formulated and executed strategy to be challenged in light of new external circumstances, data collected about the performance of the existing strategy, and new sug- gestions from employees throughout the organization. Being willing to welcome and subject existing business strategies to fact-based chal- lenges is one of the hallmarks of effective leadership. Our sufficiency claim, however, is even bolder. The management pro- cesses we describe in this book give an effective leader a framework for ef- fective strategy execution.
None of the six stages in the management system is simple or brief. But collectively, the management processes in the six stages provide leaders with a comprehensive, proven system for managing the development, planning, implementation, review, and adapta- tion of their strategies. While we report, at the beginning of this chapter, the discouraging statistics on the frequent failures of strategy execution, we believe that our eighteen years of observation and work with enterprises in all sectors and regions of the world has led to an emerging science of strategy execution.
Each of the six stages in the strategy management sys- tem is doable, especially when guided by a senior strategy management office. The one component we cannot provide a blueprint for is visionary and effective leadership. That is why we have come to believe that execu- tive leadership is now both necessary and sufficient for successful strategy implementation.
We wished to publicly recognize organizations around the world that had used the BSC in an exemplary manner to suc- cessfully execute their strategies and achieve breakthrough performance results.
We also sought to identify and learn the best practices from the successful organizations. We used two criteria to select organizations for this award: Do they use strategy maps and Balanced Scorecards within a for- mal strategy execution system? Have they successfully executed their strategies, as evidenced by significant quantified and validated results? Since the program was introduced, approximately one hundred orga- nizations have received the award.
Several other Hall of Fame companies also stand out in having developed and implemented the high-level processes in the new management system. We close the chapter with short case studies of the experiences at Ricoh, Luxfer Gas Cylinders, and Nordea.
Ricoh After a spate of acquisitions begun some ten years ago, Ricoh needed an overarching strategy around which to unify four business units: Ricoh U. In , then CEO Katsumi "Kirk" Yoshida concluded that growth in demand for the company's traditional products-black-and-white digital copiers, fax machines, and laser printers-was slowing, while the market for color products, multifunction copiers, and printers was growing rap- idly.
Cus- tomer intimacy would be critical to Ricoh's future success, and that meant introducing a solutions approach to its offerings. Ricoh's many units, Yoshida realized, would have to be more fully integrated to deliver comprehensive, customized solutions. That year, the company launched discussions about its new market focus and began to introduce the Balanced Scorecard as the framework for the required strategic transformation.
The timing was fortuitous: Ricoh's cross-organizational executive team had recently convened to begin developing the company's fourteenth three- year strategic plan the Mid-Term Plan, or MTP. The team crafted a cor- porate strategy map and BSC and then built strategy maps and scorecards for all four units. In Latin America, the company cascaded strategy maps and BSCs to its twelve country-based subsidiaries.
Yoshida established ten key universal BSC measures that put all units on the same page, and a consulting team trained executives in BSC development and implementa- tion. To foster employee alignment, the team measured every employee on three to five goals that were aligned with corporate objectives and mea- sures, as well as with those on the employee's unit's BSC. It also tied employee compensation and performance bonuses to achieving the employees' per- sonalobjectives.
Yoshida's successor, Susumu "Sam" Ichioka, set an ambitious growth strategy: Although the refined strategy was based on the same mission, vision, and core values that had been established in "to become the Americas' number-one document solutions company"-Ricoh updated these elements to reflect the company's chcnged focus on the cus- tomer. Its vision, for example, grew more far-reaching: The company also refined its strategy formulation process and devel- oped new strategy maps and BSCs.
Over a six-month period in and , executives from four companywide strategic planning teams held regular strategy formulation meetings in which they also identified strategic initiatives.
The Strategy and Planning Office SPO , established in to orchestrate strategic planning, led a series of meetings for the four key cross- functional teams charged with overseeing strategy execution throughout the organization. In , for the first time, Ricoh Latin America achieved profitability in every country of operation. Its manufacturing facilities in the Americas achieved zero waste to landfill, or percent resource recovery.
Ricoh instituted a program of quarterly and monthly strategy review meetings at both the corporate level and the business unit level. The company introduced a unique approach for defining, aligning, and prioritizing projects beyond the normal operating budget.