Strategy is possibly the most discussed and debated term on the organisational landscape today. In the past fifty years, a relatively short period in the storied history of commerce, literally thousands of book, articles, and theories have been produced; all promising to elevate organisations from the pack through the use of a differentiating strategy.
Most organisations have heeded this call, forming strategies that range from "back of the envelope dreams" to highly complex and robust analyses of current and future considerations.
Sadly, while strategy formation has seen prodigious growth, the same cannot be said of strategy execution. In fact, the statistics are downright sobering – just an estimated 10 percent of all organisations effectively execute their strategiesi.
The stakes in this game are huge with trillions of dollars of public money, shareholder value, and careers on the line. In many cases the failure to execute ultimately rests on the well-compensated shoulders of senior executives, and when they fail to deliver they're quickly shown the door. Recent studies suggest that upwards of 40% of all CEOs fail in their first 18 monthsii, and senior executive tenure is now at an all time low of just 7.6 yearsiii.
With the vital signs of strategy execution barely traceable a framework is necessary to help organisations overcome these staggering odds.
The Balanced Scorecard
Introduced by Robert Kaplan and David Norton in the early 1990s the Balanced Scorecard was developed as a tool to directly combat the inability to successfully execute strategy.
The nascent framework challenged leaders to translate their strategies, making them explicit, through the use of measurement in four distinct, yet inter-related perspectives:
- Financial,
- Customer,
- Internal Processes, and
- Employee Learning and Growth.
Armed with a clearer articulation of the inner workings of strategy, organisations began to execute and the Balanced Scorecard began its swift ascendance towards the pantheon of management tools. Along the journey it continued its evolution from a purely measurement based tool to a strategic management system, and also a powerful communication tool with the advent of Strategy Maps in the late 1990s.
The Field of Strategic Management
The Balanced Scorecard has decisively demonstrated that strategy can be executed by all organisations willing to follow a rigorous path lined with a number of key principles utilised by successful organisations over the past fifteen years.
The Scorecard has shown with equal conviction the handsome rewards which await those organisations willing to travel this road, in the form of increased financial results, more satisfied and loyal customers, robust and efficient processes, and perhaps most importantly employees working to maximum productivity and satisfaction through the alignment of skills and strategy.
What has become crystal clear in recent years is the differentiating competitive advantage produced when organisations effectively manage and execute their strategy through the use of the Balanced Scorecard.
Also glaringly apparent, however, is the fact that most organisations do not actively manage the strategy process in its entirety; bits and pieces of this vital enabler of success are strewn somewhat wildly throughout the vast reaches of the typical enterprise. But help is on the way, with some intrepid pioneers recognising this deficiency and advocating an entirely new professional function, the "Strategic Management Office," which marries the strategy formation and execution functions in one coordinated effort.
Functions of the Strategic Management Office (SMO)
Fundamentally, the SMO is the guardian of the many processes - normally cutting across organisational boundaries and requiring unprecedented integration - required to successfully execute strategy.
As noted above, what's new and different here is the fact that one function or office takes responsibility for the complex and coordinated effort required to execute the organisation's strategy. Collaboration and integration aren't left to chance, but are carefully managed under the auspices of the SMO.
Although the art and science of the SMO are nascent fields, early research and practitioner experience has led to a number of key functions falling under the umbrella of the office. Each is outlined below:iv
- Change Management: At its very core strategy is about doing something different; about choosing a different set of activities and processes than your rivals, and executing them flawlessly.
Therefore, the notions of strategy and change are inextricably linked, since strategy introduces novelty in the form of a new organisational direction. As we all know, change is a difficult concept to operationalise for most organisations.
As Machiavelli reminds in his classic work "The Prince," "It ought to be remembered that there is nothing more difficult to take in hand, more perilous to conduct, or more uncertain in its success, than to take the lead in the introduction of a new order of things."v
As perilous as the task may be it must be accomplished should organisations hope to reap the rewards of differentiating strategies. Therefore, among the first responsibilities of the SMO is the challenge of change management. SMO staffers must outline the rationale for the change, discuss how it will be implemented, clarify expectations, and most vitally, clearly establish what benefits await employees willing to accept the change.
- Strategy Formation and Planning:
While the SMO is not necessarily responsible for crafting organisational strategy, and in fact probably should not be, as strategy is best developed by line managers, it should be accountable for the process in which strategy is developed.
This may encompass many duties, including:
- gathering relevant strategy inputs such as competitive and environmental information,
- conducting scenario planning,
- facilitating strategic dialog and debate, and
- orchestrating the strategy timetable.
To effectively execute this responsibility it is critical that the SMO work closely with the senior executive team.
- Balanced Scorecard Coordination (BSC):
An obvious role of the SMO is custodian of the organisation's BSC process and its many attendant responsibilities.
Members of the SMO team must demonstrate their strategic acumen as they work closely with the executive team in developing the organisation's Balanced Scorecard.
When the Scorecard is created much of the SMO's work is still to be done: BSC training throughout the enterprise, facilitation of Scorecard result meetings, and guardianship of the information systems used to display and disseminate results to name but a few.
- Strategic Communication:
Unfortunately, gold stars for communication are not in the immediate future for the vast majority of companies. When it comes to sharing information the rule of thumb for many organisations appears to be: too little, too late, and top down.
In the era of scientific management at the turn of the twentieth century this oversight could be readily ignored, employees of that epoch generally required little in the form of communication to perform their laborious and repetitive tasks. The knowledge economy of the twenty-first century, however, demands more from our leaders.
Should they expect to win both the hearts and minds of their staff they must engage in virtually constant communication of the building blocks of success: mission, vision, values, strategy, and the necessity of change.
Working with other constituents across the organisation (Corporate Communications as an example) the SMO should coordinate communication activities centering on strategy. A key tenet of this work is the use of many and varied communication devices, including: town hall meetings, presentations, and e-learning opportunities, all segmented by audience.
- Alignment:
Inconsistency is a ticking time bomb in many organisations, just waiting to explode and destroy any hope of success. Frequently the inconsistencies, while philosophically simple, are profound in their damaging effects, for example: constantly espousing the value of team-work but rewarding individual performance, or touting the critical nature of innovation but refusing to provide budget dollars for experimentation.
Credibility is potentially the most valuable currency possessed by leaders, and when they say one thing and do another it is substantially eroded, leaving employees scratching their heads as to why they should expend one ounce of precious energy when they know priorities are as stable as leaves blowing in the wind.
The SMO must ensure that all critical organisational processes are in alignment with the strategy, thereby eliminating the possibility of inconsistencies. One of the most vital links is that between strategy and performance management, including personal development planning and compensation.
Human capital is the real driver of the knowledge economy and every organisation must ensure this most scarce of resources is aligned with the strategy.
- Initiative Management: For many organisations, a high payback on their SMO investment is received when they actively manage the initiative process.
The vast majority of truly "strategic" initiatives are cross-functional in nature, frequently requiring collaboration among business units, IT, and other entities, and thus must be managed in a cross-functional manner.
- Governance Coordination: We've undoubtedly entered a new era of corporate governance in the wake of the many scandals which have plagued the business world for the past several years.
To fulfill their significant, and now highly regulated, responsibilities, Boards of Directors (and other external stakeholders) require information that goes beyond high-level graphs and abstractions, and provides a penetrating view inside the organisation's strategy and value creating mechanisms.
Going a step further, management professor and governance catalyst Edward Lawler has suggested Boards need a Balanced Scorecard to illuminate corporate performance: "Boards need indicators of how customers and employees feel they are being treated–how the company operates–about the culture of the organisation."vi
The SMO has the opportunity to break new organisational ground in this regard by working with the Board and other external stakeholders to proactively determine their information needs and meet them in a timely and efficient fashion.
- Performance Review Administration:
Strategy must constantly be monitored and tested in real-time to determine its efficacy, and the performance review meeting is the setting for this learning laboratory. The SMO coordinates the overall performance and strategy review process by determining the timetable, developing the agenda, facilitating the discussion, and ensuring follow-up actions are documented and completed.
Initial Considerations in Establishing a Strategic Management Office
There exists in the field of social psychology a phenomenon referred to as "diffusion of responsibility," which often manifests itself in scenes of personal tragedy, for example we've all heard of people suffering from heart attacks on bustling city streets only to be ignored as they cry out for help. That's diffusion of responsibility in action – we all assume that someone else will jump in and lend a hand.
In less dramatic fashion, this phenomenon is played out in the halls of organisations each and every day as various functions work independently of one another, often sub-optimising overall results.
The strategic management office can help you overcome this deficiency by acting as connective tissue that binds together the many processes having a stake in the execution of strategy. But where to begin?
Two critical considerations are staffing and areas of emphasis. Let's examine each briefly.
In order to fulfill its vital role the SMO must have a seat at the executive table, or at the very least report to a senior executive within the organisation. The office will be called upon to work across organisational boundaries and if necessary must have the ability to play the position power card in bringing disparate organisational audiences together.
While staff size typically varies depending on the size of the organisation, there are some key characteristics to consider when staffing up the office.
Chrysler Corporation for example fills their SMO with what they consider high potential individuals, each (generally) with five years of experience in multiple areas of the companyvii. Their varied backgrounds provide these individuals with networks throughout the company, while also contributing the diverse viewpoints necessary to fuel creative dissent that often drives breakthrough results.
Creating and managing a strategic management office where none existed in the past is a significant undertaking, and is best considered from an evolutionary frame of mind. It will prove virtually impossible (given logistical challenges for one) to simultaneously master each of the functions noted in the section above.
Therefore, organisations must determine where their greatest sources of pain exist and strategically administer aid in the form of SMO interventions.
For example, communications may have been non-existent in your organisation in the past, and therefore a first year imperative of the SMO may be the creation and administration of a strategic communication plan.
Of course, in order to make strategy execution a core competency each of the functions must be attended to, as with all things it is ultimately a matter of balance.
i. Statistics from the Balanced Scorecard Collaborative et. al.; published in various sources.
ii. Dan Ciampa, “Almost Ready: How Leaders Move Up,” Harvard Business Review, January 2005.
iii. Ram Charan, “Ending the CEO Succession Crisis,” Harvard Business Review, February 2005.
iv. Robert S. Kaplan and David P. Norton, “Strategic Management: An Emerging Profession,” Balanced Scorecard Report, May-June 2004. Note: The author of this article has re-ordered the functions based on his experience and beliefs. In addition, he has altered Kaplan and Norton’s original description of certain functions (principally governance which they consider the integration of such processes as budgeting, planning, and reporting. It is the author’s contention that these functions are covered elsewhere in the model).
v. Nicocolo Machiavelli, The Prince, W.K. Marriott, trans. Vol 23, The Great Books of the Western World Chicago: Encyclopedia Britannica, Inc., 1952, p. 9.
vi. “Board Governance and Accountability,” An interview with Edward E. Lawler III, Balanced Scorecard Report, January-February, 2003 p.12
vii. Katherine Kane, “Driving Strategy at the Chrysler Group,” Balanced Scorecard Report, January-February 2005.