The Office of Strategy Management
Robert S. KaplanDavid P. Norton
HBR, OCTOBER 2005
In their book Profit from the Core, Chris Zook and James Allen report that between 1988 and 1998, seven out of eight companies in a global sample of 1,854 large corporations failed to achieve profitable growth. These companies could not deliver 5.5% annual real growth in revenues and earnings while earning their cost of capital. 90% of the companies in the study had developed detailed strategic plans with much higher targets.
According to the authors, the gap arises from a disconnect in most companies between strategy formulation and strategy execution.
Some organizations established a new unit at the corporate level to oversee all strategy related activities, and the authors term it as office of strategy management (OSM).
The strategic planning function focuses on the annual strategic planning process but does not take part in seeing that the strategy gets executed. But, effective strategy execution requires communicating corporate strategy; ensuring that enterprise-level plans are translated into the plans of the various units and departments; executing strategic initiatives to deliver on the grand plan; and aligning employees’ competency development plans, and their personal goals and incentives, with strategic objectives. The company’s strategy also has to e be tested and adapted to stay abreast of the changing competition. The OSM becomes the department for coordinating all these tasks. It designs and implements the processes that make sure that strategy execution gets accomplished in an integrated fashion across the enterprise.
Chrysler started an Office of Strategy Management, a unit employing some 13 full-time people who not only manage the company’s strategy but also assist the business units in developing new products. Chrysler’s new approach to strategy execution has paid dividends. In 2004, despite a weak domestic automobile market, Chrysler successfully launched a series of exciting new cars and generated $1.2 billion in earnings.
A company has to align the strategies of its business units, support functions, and external partners with its broad enterprise strategy. Alignment creates focus and coordination across even the most complex organizations, making it easier to identify and realize synergies. In many companies, unit strategies have only rhetorical links with corporate strategy. OSM will do systematic organizational alignment. OSM organizes strategy review meeting every month.
There are organizations that have achieved significant performance improvements by giving attention to implementation of strategy. The authors have captured and codified a body of knowledge from these successful organizations that provides guidelines to others organizations to develop a new professional function focusing on the management of strategy. An office of strategy management that has responsibility for managing and coordinating all the key strategy management processes can help companies realize the benefits from the body of knowledge of strategic management.