A strategy management office is a department that manages the whole strategy process of an organization – from strategy to execution. The office not only supports senior management with strategy development but also middle management with strategy execution. The strategy management office is responsible for developing the strategy, supporting strategy execution, and monitoring and controlling the strategy and its execution.
To successfully control a strategy and its execution is helpful to set up a strategy management department that is dedicated to strategy development, strategy execution and strategy control. These three practices are crucial for every organization, as we have seen throughout this book. They belong to the most complex processes of an organization. The stakes are high. Failure to successfully develop, execute and adapt the strategy may result in organizational failure – especially in current turbulent times. Successful strategy development, execution and control requires an organizational unit that is dedicated to managing these crucial processes. Surprisingly many organizations lack such a department. Organizations often do have strategy department that is responsible for strategy development but lack a strategy execution department that oversees the execution of a strategy. This is often done by line management or the finance department, creating a disconnect between strategy and execution. To remedy this situation, global strategy execution experts Kaplan and Norton came up with the office of strategy management. An organizational unit dedicated to both strategy development and execution. In this book, I present a similar department – the strategy management office. Such a unit institutionalizes strategy management within the organization and allows executives and managers to manage strategy development, strategy execution and strategy control in an integrated way.
WHAT IS A STRATEGY MANAGEMENT OFFICE?
A strategy management office is a department that manages the whole strategy management process of an organization – from strategy to execution. The office not only supports senior management with strategy development but also middle management with strategy execution. Thus, the strategy management office is responsible for developing the strategy, supporting its execution, and monitoring and controlling the strategy and its execution.
Organize the annual strategy process. The strategy management office is responsible for the annual process by which the strategy is developed, executed and controlled. This involving planning the strategy and execution meetings for senior management and middle management. It also involves planning when important documents such as the strategic plan, implementation, annual plans and progress reports must be ready and who will deliver them. The strategy management office also manages these processes throughout the year.
Organize strategy management summits. The strategy management office organizes the annual strategy summits in which senior management decides upon the strategy, monitors the strategy and its execution and adjusts the strategy and its execution when needed. The also organize the meeting with middle management in which the progress of the execution is reviewed.
WHY BUILD A STRATEGY MANAGEMENT OFFICE?
Survey after survey reveals that most strategies fail, as we have seen. Many organizations have a fundamental disconnect between the formulation of their strategy and the execution of that strategy into useful action. An important reason for this is that many organizations lack a strategy management office that allows executives and managers to manage strategic planning and execution in an integrated way. Building a strategy management office allows executives and managers to realize their strategic and operational objectives.
Strategy and execution are often treated separately. Many organizations have separated strategy development and strategy execution. Strategies are often developed by the senior management supported by the department of strategic planning, the finance department or external strategy consultants. Strategy execution is then delegated to line management and monitored by the finance department. This separates strategy development and execution and often results in strategy execution failure. Strategy development and implementation are integrated and continuous processes. The main aim and advantage of a strategy management office is to integrate both processes. Ideally, the strategy management office both develops and monitors the execution of the strategy.
Less focus on strategy execution. Many senior management teams focus more on strategy development and general management and do not pay enough attention to strategy execution. Strategy development is often seen as a prestigious task for senior management, while strategy execution is viewed as more mundane and less exiting responsibility that is delegated to lower level management.
Many organizations lack a strategy execution unit. Many organizations do have department of strategic planning that develops strategy but lack a department that monitors and controls the execution of the strategy. Therefore, many organizations fail in translating their strategies into operational objectives, processes and activities, and subsequently monitor and control the progress of the execution of the strategy. Thus, most strategies fail to achieve the desired results.
Aligning strategy, execution and control. The implementation of a strategy management office allows managers and executives to align strategy formulation and implementation. The purpose of the strategy management office is to coordinate strategy formulation as well as strategy execution and strategy control in an integrated way. The separation between strategy development and strategy execution is a key reason for strategic failure, as we saw earlier. The office supports senior management in developing the strategy and middle management in executing that strategy. The office also help senior management control the strategy and middle management control its execution. This way, organizations can successfully develop and implement their strategy.
MANAGING THE STRATEGY MANAGEMENT SYSTEM
The strategy management office is responsible for managing the strategy management system. The strategy management system or strategy management cycle is the annual process of strategy development, strategy execution and strategy control. The strategy management system is an annual strategy control cycle that enables organizations to achieve its strategic and operational objectives. The strategy management system consists of five elements (see Figure 2):
FIGURE 2: THE STRATEGY MANAGEMENT SYSTEM
The strategy management system is an annual cycle that integrates the planning and execution of a strategy and consists of five stages:
1) Analyzing the external environment, the internal organization and current strategy.
2) Developing the mission, vision and strategy.
3) Translating the strategy into strategic initiatives, operational objectives, processes and activities.
4) Monitoring and adapting the execution of the strategy.
5) Monitoring and adapting the strategy itself.
Next, we discuss each of the five stages and the role the strategy management office plays in it.
ANALYZING THE STRATEGY
The strategy management office is responsible for the first stage of the strategy management system – analyzing the strategy. The department supports senior management by making a strategic analysis of the macroeconomic environment, the industry in which the organization operates, key competitors and the current performance of the organization and its strategy. Based on these analyses the department comes up with scenarios and strategic options with how to best deal with these scenarios. The strategy analysis serves as input for strategic decision making, developing the strategy and adapting the strategy when needed. The strategy analysis consists of the following five analyses.
Evaluate the current strategy. The strategic analysis with a strategy analysis in which the performance of the current strategy of the organization and its performance is evaluated. The main aim is to assess whether the strategy allows the organization to achieve its goals and vision. The task of the strategy management office is to continuously analyze the performance of the strategy and the organization.
Analyze the external environment. After analyzing the current strategy, an external analysis is made of environment in which the organization operates. Assess the macroeconomic environment of the organization. This involves analyzing the political, economic, social, technological, environmental and legal factors and how they influence the activities and performance of the organization. Next, the industry and market in which the organization operates is analyzed. This can be done by using Michael Porter’s five forces framework. This framework can be used to analyze and industry by look at the five forces that shape strategy: threat of new entrants, bargaining power of buyers, bargaining power of suppliers, threat of substitute products of services and rivalry among existing competitors. This analysis helps to assess the attractiveness of the industry and to identify the forces that may shape the industry. The external analysis focusses on finding developments in the business environment that are threats or opportunities for the organization.
Benchmark competitors. Part of the external analysis is an analysis of the competition. A competitor analysis obtains information about key competitors that enables an organization to predict the behavior of competitors allowing better strategic decisions. A profile is made of each key competitor based on their product or service offerings, pricing and costs, strategy, strengths and weaknesses, profitability, marketing strategy and market share. An important part of the competitor analysis is to identify your best competitors. The aim is to analyze their core capabilities and benchmark them against you own. Such an analysis allows organizations to find out what key capabilities and processes they can improve and how to differentiate themselves from its main competitors from the perspective of customers. In the case of public or non-profit organizations, comparable organizations are benchmarked.
Assess the organization. After the external analysis, the focus turns inward. Make an internal analysis of the internal organization, which is focused on uncovering the strengths and weaknesses of the organization. This involves an analysis of the organization structure and culture, primary processes and the quality of its people. The aim is to find out what the organization is especially good at – often referred to as core competences or core capabilities. However, it also involves finding any weaknesses that may need to be mitigate.
Conduct a SWOT-analysis. After assessing the environment and organization, a SWOT analysis is made in which the threats and opportunities that emerged from the external analysis are related to the strengths and weaknesses of the internal analysis and the outcome of the strategy analysis. Here the aim is to come up with a strategy or strategic initiatives that make use the internal strengths of the organization to play into external opportunities and mitigates internal weaknesses and external threats. The SWOT-analysis synthesizes the outcomes of the four other analyses. It brings them all together in a holistic overview.
DEVELOPING THE STRATEGY
The strategy management office is responsible for helping the executive team develop the mission and vision of the organization. The office helps senior management formulate the strategy that aims to achieve the mission and vision. When senior management has decided on a particular strategy, the strategy management office writes it down in a three to five-year strategic plan.
Developing strategic goals and vision. Strategy development often starts with the formulation of the mission and strategic vision of the organization. The mission describes the reason of existence and identity the organization and more specifically the customer needs the organizations aims to meet. The strategic vision describes the goals and desired middle to long-term future state of the organization. The vision serves as the goal that the strategy aims to achieve. The strategic vision helps clarify the direction in which an organization is to move (Kotter, 1995). The strategic vision needs to be clearly defined and well formulated (Hussey, 1996). The strategic vision also needs to be attractive and easy to communicate toward organizational members, customers, shareholders, and other relevant stakeholders. An attractive and ambitious strategic vision can help to attract and unite organizational members and stimulate them to increase their effort (Trice & Beyer, 1991). The task of the strategy management office is to help senior management defining a clear and attractive vision of the desired future state of the organization.
Developing strategic options. The strategy management office is responsible for developing several clear strategic options what are able to achieve the mission, vision and strategic goals of the organization. The strategic options are based on the strategy analysis of stage 1. These strategic options are then presented to senior management for decision making. To allow for sound decision making, the effect of each strategic option must be quantified as much as possible. The strategy management office makes a quantitative and financial forecast of the effects of each strategic option. The analysis of the strategy and the strategic options serve as input for the next stage of the strategy management system.
Developing the strategy. After helping senior management choose one of the strategic options, the strategy management office develops a strategy to make the vision a reality. During the annual strategy summit, senior management chooses a strategy from the strategic options. The task of senior management is to choose and work out a strategy that fits the current organization most and allows the organization to achieve it strategic vision and goals.
Writing the strategic plan. The strategy that is chosen by senior management is then worked out in a strategic plan by the strategy management office. The strategic plan describes the long-term goals of the organization and the way in which it aims to achieve these goals. The strategic plan contains the goals, strategic initiatives, primary process, organization structure, culture and human resources that are needed to achieve the strategic goals.
Updating the strategic plan. The strategic plan is written by the strategy management office and updated at least annually. Strategy development is never finished. Internal and external continuously change. Therefore, the strategy must be regularly updated.
PLANNING THE EXECUTION
After the strategy is developed, the strategy management office translates it into concrete strategic and operational objectives and activities that can be clearly communicated to organizational members. Even the best strategy is worthless it cannot be translated into operational reality.
Writing the implementation plan. The objectives of the strategy and required activities to execute it are written down by the strategy management office in an implementation plan that guides the execution. The implementation plan describes the processes and activities that are needed to achieve the goals and objectives of the strategy. Strategy and strategy execution is not only about what goals and objectives to achieve but perhaps even more importantly how these objectives are to be achieved and who these objectives are to achieve. Many strategies tend to focus more on how instead of what and who. This tends to create problems during the execution of the strategy.
Defining clear objectives and activities. The implementation should contain clear and specific tasks that are required to achieve the goals of the strategy. Everyone with strategy implementation responsibilities needs to know what to do to implement the strategy and what concrete objectives they have to attain. The task of the strategy management office to help executives and managers to make the objectives are feasible and as concrete as possible. Executives and managers tend to keep objectives rather vague, as we saw earlier in this book.
Assigning clear responsibilities. The implementation plan also describes who are responsible for those processes and activities. Not only should the necessary actions to implement the strategy be identified and planned, responsibility for these actions must be allocated as well. Strategy execution can only be successful when there is a clear and shared understanding of who does what, when and at what cost. By allocating clear responsibilities for the execution of the implementation activities, progress can be measured and controlled.
Communicating the strategy. After the strategy is developed and translated into the strategy implementation plan, communicate it to all managers who have to execute it. Communicating the strategy is responsibility of the strategy management office. This is done in cooperation with the department of corporate communications.
Translate strategy to departmental objectives. After developing the implementation plan, translate it into annual department plans for each organizational unit. The heads of each organization unit translate the implementation plan into the annual plan for their unit. In the annual department plan, the department heads clearly describe how the department will contribute to the objective of the strategy and how to execute it. The strategy management office supports the development of the department plan by providing a standardized template. The annual plan is developed before the year starts. During the year, the strategy management office monitors the execution of the annual plans.
Develop budgets. When the strategy is developed, and written down in a strategic plan, translate it into a three-year budget for the whole organization. The budget contains the expected costs and revenues of next three years. Based on the annual plans of the organizational units, the finance department draws up departmental budgets for each department. The realization of the budget is monitoring by the finance department during the year.
CONTROLLING THE EXECUTION
After the strategic plan has been developed and translated into the implementation plan and annual department plans the monitoring and control of the execution begins. The strategy management office is responsible for the monitoring and control of the execution of the implementation plan and department plans. This involves organizing execution control sessions with middle management and reporting the execution progress to the executive team.
Monitoring the execution of the strategy. During the year, the strategy management office monitors the execution of the strategic plan and annual department plan. This is done by monitoring the objectives and milestones that are part of the strategic plan, the implementation plan and department plans. The strategy management office provides the department heads monthly, bi-monthly or quarterly information about the realization of the annual department plan. The progress reports are based on the input from the department head. While the strategy management office draws up the progress reports, the content of the report remains the responsibility of the department head. The progress reports are discussed by members of the strategy management office and the department head in periodical meetings. These meetings are held monthly, bi-monthly or quarterly.
Organize execution control sessions. The strategy management office provides the executive team periodically with the execution reports about the progress of the execution of the department plan. These progress reports are subsequently discussed by department heads and one or more members of the executive team. The department heads are responsible and accountable for the execution of his or her annual department plan.
Adapt the execution. Adjustments need to be made when the objectives of the implementation effort are not being met. This may involve setting new and more realistic objectives, adapting the planning of the objectives and activities or defining new activities. The strategy management office supports the department head with the development of measure that can be taken to get the execution back on track.
CONTROLLING THE STRATEGY
Not only must the execution of the strategy be monitored and adjusted when needed, the strategy as well. Monitoring and adapting the strategy is the last phase in the strategic management cycle. This stage consists of monitoring the progress of the realization of the strategic objectives and milestones of the strategic plan and implementation plan. When objectives or milestones are not met as planned, the (goals of the) strategy or its execution must be adapted.
Strategy review meetings. During periodic strategy review meetings, senior management assesses the performance of the strategy and the organization. The strategy management office periodically provides progress reports during the year that report on the progress of the realization of the strategic plan the implementation plan and the budget. The executive team discusses these strategy reports in monthly, bi-monthly and quarterly strategy review meetings.
Adapt the strategy. When the strategy of the organization is not achieving the desired results, the strategy management office helps senior management decide whether the strategy must be adapted or not. When strategic objectives are not met, it is possible that the assumptions underlying the strategy are flawed or obsolete. When this happens the task of the strategy management office is to help decide whether incremental improvements will suffice or that a fundamentally new strategy is required.
Identify the root causes of strategy performance. A key responsibility of the strategy management office is to analyze in-depth the performance of the current strategy. Especially when the performance of the strategy is lacking, is it crucial to understand why this is the case. When it is unclear what is causing the poor performance of the strategy, it is impossible to improve its performance except by chance. This strategy analysis is the same as the strategy analysis of stage one – analyzing the strategy – bringing the strategy management system full circle.