THE OFFICE OF STRATEGY MANAGEMENT

Strategyatmanycompaniesisalmostcompletelydisconnectedfromexecution.Establishingadedicatedunittoorchestratehothwillhelptobridgethedivide.MOSTCOMPANIESHAVEAMBITJOUSPLANSforgrowth.Feweverrealizethem.IntheirbookProlUfromtheCore,Chris/ookandJamesAllenreportthaibetween1988and199S,sevenoutofeightcompaniesinaglobalsampleof1,854largecorporationsfailedtoachieveprofit-ablegrowth.!hcUis,thesecompanieswereun.ihictodeliver5.5%annualrealgrowthinrevenuesandearningswhilecamingtheircostofcapital(arathermodesthurdle).Yet90%oftheconipa-fc;niesinthestudyhadTHFfit^-developeddetailedIntUi»strategicplanswithCTPi;muchhighertargets.^'':WhyistheresuchMANAlIapersistentgapbe-iviMiirt*tweenambitionandIperformance?TheIgaparises,webelieve,fromadiscon-*nectinmostcompaniesbetweenstrat-[egyformulationandstrategyexecu-tion.Ourresearchrevealsthat,onaverage,95%ofacompany'semployeesareunawareof,ordonotunderstand,itsstrategy.Iftheemployeeswhoareclosesttocustomersandwhooperateprocessesthatcreatevalueareun-awareofthestrategy,theysurelycan-,nothelptheorganizationimplementiteffectively.!tdoesn'thavetobelikethis.ForIthepast15years,wehavestudiedcom-•paniesthathaveachievedperfor-'mancebreakthroughsbyadoptingthe'BalancedScorecardanditsassociatedtoolstohelpthembettercommuni-catestrategytotheiremployeesandtoguideandmonitortheexecutionofTHEOFFICEOFthatstrategy,(l^orbackgroundontheBalancedScorecard,seeourbookTheStralcgy-FociiscdOr^cinizalion,HarvardBusinessSchoolI'ress,2ooo.)Somecompanies,ofcourse,haveachievedbettorandlongcriastingim-provementsthanothers.Theorgani-zationsthathavemanagedtosustaintheirstrategyfocushavetypicallyes-tablishedanewunitatthecorporateleveljprrtrtooverseeallstrat-IULUr^,gyrelatedactivities.MANAGEMENT^'niamigcmcnt(OSM),•MFNT^swecallit..iviu11Ijj^jj,i,jg|ijappeartobenothingmorethananewnameforthefamiliarstrategicplanningunit.Butthetwoarequitedifferent.Thetypicalplanningfunctionfacilitatestheannualstrategicplanningprocessbuttakeslittleornoleadershiproleinseeingthatthestrategygetsexecuted.Thecompanieswestudied,however,recognizethateffectivestrategyexecu-tionrequirescommunicatingcorporatestrategy;ensuringthatenterprise-levelplansaretranslatedintotheplansofthevariousunitsanddepartments;executingstrategicinitiativestodeliveronthegrandplan;andaligningemploy-ees'competencydevelopmentplans,andtheirpersonalgoalsandincentives,withstrategicob-jectives.What'smore,theyrecognizethatthebyRobertS.KaplanandDavidP.NortonIaOCTOBER200573TheOfficeofStrategyManagementcompany'sstrategymustbetestedandadaptedtostayabreastofthechangingcompetition.TheOSMbecomesthecentraipointforcoordinatingallthesetasks.Itdoesnotdoallthework,butitfacilitatestheprocessessothatstrategyexecutiongetsaccomplishedinanintegratedfashionacrosstheenterprise.Inthefollowingpages,wewilldescribehowthecon-ceptoftheofficeofstrategymanagementcameintobeingandhowithashelpedcompaniesalignkeyman-agementprocessestostrategy.AlthoughthecompanieswehavestudiedusetheBalancedScorecardastheframe-workfortheirstrategymanagementsystems,webelievethatthelessonswedrawarealsoapplicabletocompa-niesthatdonotusetheBalancedScorecard.StrategyManagement:TheNewSupportFunctionTheexhibitTheOldStrategyCalendardepictsthestrat-egymanagementscheduleatatypicallargecompany.Theprocessstartsaboutmidwaythroughthefiscalyear,whentheCEOandtheexecutiveteamgettogethertoclarifytheirstrategicvisionandupdatethestrategy.Sometimeafterward,similarprocessestakeplaceatthebusinessandfunctionalunits,ledbyunitheadsandotherseniorexecutives.Towardtheendofthethirdquarter,thefinancefunctiontakesthebaton,finalizingcorporateandunitbudgets.Attheendoftheyear,theHRfunctioncon-ductsemployees'annualperformancereviewsandor-chestratesthesettingofprofessionalgoalsanddevelop-mentprograms.Throughouttheyear,meanwhile,differentteamsandunitshaveengagedinperformancereviews,corporatecommunication,andknowledgesharing.Theproblemwiththisapproachisthattheactivitiesarecarriedoutlargelyinisolationandwithoutguidancefromtheenterprisestrategy.Thispartitionofresponsi-bilitiescreatesthegulfbetweenanorganization'sstrategyanditsprocesses,systems,andpeople.SurveysthatweconductedofHRandITmanagersrevealthatthestrate-giesoffully67%ofthoseorganizationsarenotalignedwithbusinessunitandcorporatestrategies;nordoHRandITdepartmentalplanssupportcorporateorbusiness-unitstrategicinitiatives.Budgetingissimilarlydiscon-nected:Some60%oforganizationsdonotlinktheirfi-nancialbudgetstostrategicpriorities.Incentivesaren'taligned,either:Thecompensationpackagesof70%ofmiddlemanagersandmorethan90%offrontlineem-ployeeshavenolinktothesuccessorfailureofstrategyimplementation.Periodicmanagementmeetings,corpo-ratecommunication,andknowledgemanagementaresimilarlynotfocusedonstrategyexecution.RobertS.Kaplan([e-mail])istheBakerFoundationProfessoratHarvardBusinessSchoolinBoston.DavidP.Nor-ton(dnorton@bscolcom)isthefounderandpresidentoftheBalancedScorecardCollaborative(),basedinLincoln,Massachusetts.Whatcancompaniesdotochangethisstateofaffairs?TheexperienceoftheChryslerGroupfirstsuggestedtousthatth