The Idea in Brief
Most large organizations fail to achieve profitable growth—despite ambitious plans. Why the gap between intended and actual performance? There’s an alarming disconnect between the parts of the organization that formulate corporate strategy and the functions, processes, and people required to execute it.
67% of HR and IT departments’ strategies don’t reflect corporate strategy. 60% of organizations don’t link their financial budgets to strategic priorities. Compensation packages of 90% of frontline employees show no connection to the success or failure of strategy execution. 95% of the typical company’s workers are unaware of, or don’t understand, its strategy.
How to close the breach between strategy formulation and execution? Create an office of strategy management (OSM). Your OSM couples the units responsible for strategic planning with those performing the activities required to implement strategy—such as establishing budgets, communicating strategy to the workforce, and designing compensation systems that reward strategic performance.
The payoff for designing an effective OSM? A corporate strategy that delivers on its promises. Thanks in part to its OSM, the Chrysler Group generated $1.2 billion in earnings and launched a series of exciting new cars in 2004—while the rest of the U.S. domestic auto market languished.
The Idea in Practice
Design your office of strategy management to perform these functions:
Create and oversee your strategy management system. Help the executive team select performance targets and identify required strategic initiatives. Initiate and administer your company’s strategic performance reporting system. To maintain integrity of performance data, create and enforce uniform organization-wide metrics.
Incorporate changes in corporate strategy into all documents and tools that the company uses to track strategic performance—such as strategy maps and the Balanced Scorecard.
Align the organization. Actively manage organizational alignment with corporate strategy. Institutionalize the use of a common strategic performance reporting system by all units. Ensure that business unit and support unit strategies are linked to one another and to the company’s strategy.
Communicate strategy. Through newsletters, CEO speeches, and other channels, communicate corporate strategy, targets, and initiatives to the workforce. Coordinate with HR to ensure that education about the strategy management process is included in training programs.
Review strategy. Organize and lead monthly strategy-review meetings, briefing the CEO about strategic concerns in advance. Document needed adjustments to strategy and execution identified during meetings and follow up to ensure that changes are implemented. Help the chief financial officer prepare strategy updates for board meetings.
Refine strategy. Evaluate new strategic ideas coming from within the organization and convey promising ones to senior management.
Manage strategic initiatives. Manage strategy-related initiatives that cross unit and functional lines, to ensure they receive sufficient resources and attention. Monitor progress of all strategic initiatives and report on them to top management.
Consult with key strategy support functions.
- Planning and budgeting. Work with the finance department to ensure that corporate and unit budgets reflect those established during the strategic planning process and that each unit’s budget includes resources needed for the unit’s contribution to cross-functional strategic initiatives.
- Human resource alignment. See that the HR function manages employee incentives, competency development programs, and annual performance reviews in a manner consistent with corporate and business unit strategic objectives.
- Knowledge management. Coordinate with the chief learning officer to ensure that the best practices and ideas most critical to the corporate strategy are shared throughout the organization.
Most companies have ambitious plans for growth. Few ever realize them. 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. That is, these companies were unable to deliver 5.5% annual real growth in revenues and earnings while earning their cost of capital (a rather modest hurdle). Yet 90% of the companies in the study had developed detailed strategic plans with much higher targets.