These core values are the soul of our company. We anticipate their needs and exceed their expectations. We guard and conserve the company's resources with at least the same vigilance that we would use to guard and con- serve our own personal resources.
We own problems and we are always responsive. We are customer- driven. It should be market oriented and should express- often in visionary terms-how the enterprise wants to be perceived by the world. A statement such as, "We will be among the top three transporters of goods and people in North America by " provides a clear, specific aspiration. The vision of Cigna Property and Casualty, an insurance company we worked with in the s, was "to be a top-quartile specialist within five years.
In , U. President John F. Kennedy offered one of the most famous and effective public- sector vision statements when he declared that the U.
It's important to be ambitious in setting the company's goals, and the CEO must take the lead. Indeed, one of the principal roles of an effective leader is to create a sense of urgency and formulate a target that challenges all employees, even in a well-performing organization, to become much better. Without strong leadership, an or- ganization becomes complacent and, at best, achieves incremental improve- ment from the status quo.
Great leaders understand that complacency is the enemy. A classic ex- ample is Jack Welch's challenge, upon becoming CEO, for every GE busi- ness unit to either become the number 1 or 2 in its industry or else depart from the corporation. Collins and Porras note, "Visionary companies may appear straitlaced and conservative to outsiders, but they're not afraid to make bold commitments to BHAGs, 'Big Hairy Audacious Goals.
Companies that have used the Balanced Scorecard to achieve success consistently have had inspirational leadership. In taking over the troubled Cigna Property and Casualty insurance division, Gerry Isom started by de- claring his stretch goal: for the division to move from the bottom of the fourth profitability quartile to the top quartile in five years.
Dudley Nigg, CEO of the online banking unit of Wells Fargo in , understood that even though the division was the leading online bank in the United States, it had to get dramatically better if it was to retain its first-mover advantages.
And Michael Arthur, upon becoming vice-chancellor of the University of Leeds in , challenged the deans, the faculty, and the administrative staff to help the university become one of the world's greatest research and teaching institutions.
Great leaders set ambitious targets for their organizations. The vision statement should declare, at the highest organization level, ambitious tar- gets for the strategy, including a clear measure of success and a specific time horizon for achievement. But people in the organization may not understand why it needs a new strategy and why they need to change in order to achieve the stretch target.
Creating a sense of urgency and communicating the need for change are critical roles for leadership. The strategic change agenda compares the current status of several organizational structures, capabilities, and processes with what they need to become over the next three to five years.
CBS was created during a corporate crisis in the s as the successor organization to the Canadian Red Cross after an infamous scandal. In this scandal, multiple failures in gov- ernance, management, and decision making resulted in thousands of Canadians becoming infected from contaminated blood.
The scandal led to an irreparable loss of trust in the system as a whole. In its initial years, CBS focused on operational issues to fix the system.
After about four years of intensive work, CBS was able to report that the blood supply sys- tem in Canada was secure, with adequate amounts of safe, high-quality blood products meeting clinical needs when and as required. He noted that the enterprise had launched a great many independent initiatives, each often competing with the others for the same limited re- sources and without coherent management.
Having fixed and stabilized - CBS's operational issues, Sher saw the opportunity for CBS to create a modern and robust blood system, as good as any worldwide, and leverage CBS's unique operating model to help solve other health-care delivery chal- lenges in Canada.
But doing so would require a clear strategy, a new strategy execution process, and far greater alignment throughout the organization. Before embarking on this difficult journey, Sher and his senior man- agement team created an explicit agenda for change, as shown in Figure , to articulate the need for change and explain it to all CBS employees. Employees are often resistant to change, not the least because they are skeptical of the CEO's commitment to sustain the change process.
Having the CEO clearly express dissatisfaction with the status quo-and, at the same time, articulate a clear, detailed, and compelling case for change- helps immensely to overcome such resistance. To respond to its new challenges and competitive threats, the FBI needed a completely new strategy and major changes in the organiza- tional culture.
FBI Director Robert Mueller recognized the need to pre- pare and educate all the employees about the massive changes ahead. He prepared the strategic change agenda shown in Figure to describe the scale and scope of the transformation. The change agenda indicates that the FBI would have to undergo a major shift from being a case-driven organization reacting to crimes al- ready committed to becoming a threat-driven organization attempting to prevent a terrorist incident from occurring.
In even more of a discontinuity, the FBI had to learn to share information and work collaboratively with other federal and local agencies to prevent incidents that could harm u. These guidelines, which emerged from extensive dialogue throughout the organization, engaged all levels of the FBI to participate in setting the goals for the new strategic direction and contributed to widespread understanding and support for the new strategy that subsequently was crafted.
Director Mueller carried the laminated FBI strategic change agenda chart Figure with him whenever he visited a field office.
If agents expressed skepti- cism about or resistance to the new initiatives and structures, he reminded them, using the single-page summary, why change was necessary. In summary, the start of the strategy development process requires the leadership team to reaffirm the enterprise's mission, values, and vision, perhaps updating the targets in the vision statement as needed.
If the en- terprise is about to embark on a major new strategy and organizational transformation, the leadership team should articulate and communicate a strategic change agenda to describe the necessary cultural, structural, and operating transitions from the past to the future. Defining the Enhanced Vision Strategy execution requires an architecture that integrates the strategies and operations of diverse units scattered throughout an enterprise.
Re- search shows, however, that more than 60 percent of organizations cur- rently lack an integrated strategy perspective, with functional units such as human resources, information technology, and finance not linked to business unit and corporate strategy. The executive team can use a strategy map's four-perspective framework to define an enhanced vision, as shown in Figure The en- hanced vision statement provides a comprehensive picture of the enabling factors to achieve the vision, including the customer value proposition, key processes, and the intangible assets of people and technology.
Consider the approach taken by Nemours, a health-care organization focused on the well-being and treatment of children. Nemours developed an enhanced vision to guide the develop- ment of its strategy map see Figure Nemours placed its vision and mission at the top because they represented the enterprise's ultimate objectives and accountability. Nemours placed its core values at the bot- tom of the map, recognizing that they were foundational for everything it did.
The enhanced vision, running along the left side of the strategy map,. The enhanced vision divided the strategy into four substrategies: Impact and community: Be a leader in improving children's health through our integrated health system; becoming a preeminent voice for children. These substrategies led naturally to the representation of the complete strategy, as we illustrate in Chapter 3. Now it performs an external and inter- nal analysis that includes a comprehensive assessment of its own capabili- ties and performance relative to those of competitors, as well as its positioning relative to industry trends.
External Analysis The executive team needs to understand the impact of macro- and indus- try-level trends on the company's strategy and operations. Often this is called a PESTEL analysis, reflecting political, economic, social, techno- logical, environmental, and legal components see Figure The external analysis also includes an industry-level examination of industry economics using frameworks such as Michael Porter's five forces: bargaining power of buyers, bargaining power of suppliers, avail- ability of substitutes, threat of new entrants, and industry rivalry.
The industry analysis should also include a summary of the company's performance on multiple financial ratios compared to its in- dustry competitors. Finally, the external analysis includes competitor assessments. Dimensions can be changed to provide various screens of performance. They superimpose a third dimension-perf or- mance-on the table by identifying each competitor with a circle whose size is proportional to a key performance indicator such as sales, assets, market share, or profitability.
Internal Analysis The internal analysis examines an organization's own performance and capabilities. Companies that have not yet developed a Balanced Scorecard of performance measures will rely heavily on financial information to as- sess recent performance.
A widely used analytic tool is value chain analysis, also introduced by Mi- chael Porter. In addition to the primary activities of creating a market, producing and delivering products and services, and selling to customers, the value chain can en- compass secondary, or support, activities-such as research and develop- ment, human resource management, and technology development-that facilitate the primary value-creating processes.
The value chain model helps a firm identify those activities that it intends to perform differently or bet- ter than competitors to establish a sustainable competitive advantage. Companies can also estimate activity-based cost models for each pro- cess in the value chain, a practice that helps them identify processes they perform at lower cost than competitors a source of competitive advan- tage , as well as processes in which they currently have a cost disadvantage relative to competitors.
For companies implementing a differentiating strat- egy, the costing model provides feedback about whether the increased value from the differentiation in a given process exceeds the higher costs to produce and deliver the differentiating features and services. The attributes selected for classification and evaluation are determined during the strategic planning process.
A well-conducted external and internal analysis generates a host of in- formation for a management team, much of which can be confusing when examined in totality. A SWOT table summarizes these conditions into a succinct list that helps the executive team understand the key issues that the organization must address when formulating its strategy.
For example, strengths can be leveraged to pursue opportunities and to avoid threats, and managers can be alerted to internal weaknesses and external threats that need to be overcome by the strategy. Infosys, an India-based IT con- sulting and services provider, considers alternative scenarios that illus- trate best- and worst-case situations.
The best-case scenario leads to the articulation of organizational aspirations, and the worst-case scenarios help identify key business risks that must be mitigated. Nemours man- agers now had a single-page summary of the issues that needed to be ad- dressed by their new strategy, organized by shareholders or stakeholders in the Nemours example , customers, processes, and people. Each component of the strategic analysis identifies issues that have potential strategic implications.
The planners, working with the executive team, should cull the list to identify those of greatest import. Again, the taxonomy of the strategy map helps create continuity and focus.
Figure shows the strategic issue list developed by a fashion retail company. The strategy map helped identify seven categories that would make up the strategy.
In category 5 shopping experience , it had to translate the growth objectives into specific targets for the number and types of stores. Another category 5 issue looked at how to increase revenue per customer by making the shopping experience more fun. The strategic issues guide the agenda for the strategy review meetings described in Chapter 8. This list of issues shows the key issues that must be continually discussed and managed if the strategy is to be executed successfully.
The strategic issues list also feeds naturally into strategy for- mulation, the next step in strategy development.
At this point, executives must decide how they will accomplish the organiza- tion's agenda in light of their analyses to date, their objectives, themes, critical issues, opportunities, and threats. Stimulating Creative Strategies The literature on strategy formulation and development can be overwhelm- ing, with many approaches and schools of thought. Supplementing both strategic and operational approaches are methodologies designed to minimize risk, including enterprise risk management, internal controls, and COSO for financial institutions.
We have seen various companies use each of them effectively to formulate their strategies. Whichever is employed, the formu- lated strategy can be translated, in the next strategy execution stage, into a strategy map and then made operational through a Balanced Scorecard of objectives, measures, targets, and initiatives. In fact, Figure shows ways that many of the strategic, opera- tional, and risk-management approaches can be visualized on a strategy map.
Starting at the top, most organizations use some form of financial portfolio to frame their corporate strategies. The portfolios profile the fi- nancial characteristics of each business unit to find the desired balance of growth, cash flow, and risk. Value-based management approaches, such as economic value added, focus on selecting objectives that are consistent with long-term financial perspective objectives. Enterprise risk manage- ment, including COSO and internal controls, focuses on reducing the fi- nancial, operating, technological, and market risks that can impair a company's ability to execute its strategy.
Typically, however, these finan- cial strategy and risk-management approaches do not feature customer value propositions, key business processes, or investment in intangible as- sets, all of which are critical for sustained value creation.
The most visible strategy formulation approaches focus on customers. Porter's competitive advantage framework emphasizes selecting a focus on market and customer segments and deciding whether to win in that fo- cused segment with either a low-cost or a differentiated strategy. Southwest's targeted customer base of price-sensitive travelers tolerate the lack of re- served seating, long queues to board the planes, and absence of first-class options in return for low prices, convenient flights, and on-time arrivals.
As another blue ocean example, Cirque du Soleil found a large market niche for young adults by combining the acrobatics and constant excite- ment of a circus with the music and dance associated with musical the- ater. The company generated enormous cost savings by eliminating traditional animal acts-which consumed nearly 50 percent of operating expenses and also generated controversy from animal rights groups-and invested the savings in story lines and original music and dance acts.
Companies like Southwest Airlines and Cirque du Solei! Experience cocreation enables companies to develop the value propo- sitionjointly with their customers.
A real-time system called Deere Trax allows farmers to monitor the operation of their fleets of tractors and other vehicles. Moreover, the system connects farmers who have similar problems and similar demographics with various thematic communities that can share knowledge and draw upon the collective ex- periences of the group. The design of Deere's products and services is cocreated with its customer, putting farmers at the center of the process.
Another school of thought looks at strategy as an active, competitive process. Scenario planning is a widely used approach, first developed at Shell, in which the organization develops responses to competitive and environmental moves. LG Philips LCD uses war game simulations dis- cussed in Chapter 9 to identify likely competitor reactions to various strategies that it might introduce.
Chapter 5 describes how strategies con- nect to various operational improvement programs, such as TQM, pro- cess management, and cost management. The creativity of the strategy becomes an important means to this end. Strategic planning participants can draw upon the toolbox of methodolo- gies illustrated in Figure to develop their differentiating strategy.
As executives become more knowledgeable about the range of strategy for- mulation tools, they can use the approach that seems most relevant and helpful for their company's situation, history, culture, and competencies.
Using the Strategy Map to Guide Strategy Selection The strategy map framework shown in Figure may help guide strat- egy selection. If, for example, the company has poor capital utilization, then some use of a value-based management approach would help define a financial strategy.
If the company does not have a distinctive brand or market presence, a focus on identifying an attractive customer segment- perhaps through a positioning framework, a blue ocean approach, or a cus- tomer cocreation process-might prove most relevant. If the company has distinctive capabilities in important business processes-operations management, customer data mining, or product features and innovation- that are superior to or not possessed by competitors, then the resource-based view and identification of core competencies are effective frameworks for strategy formulation.
If the company has a great human capital base, with skilled, experienced, and highly motivated employees, then striving to cre- ate a learning organization and encouraging the proposal of emergent strategies can identify promising new strategic approaches. As one illustration, consider the case of Bank of Tokyo-Mitsubishi, UFJ, one of the largest banks, measured by assets, in the world.
Figure shows how the bank has integrated various planning methodologies into its strat- egy development process. At the center is the high-level architecture for its strategy map, showing the topics, such as operations quality, for which specific strategic objectives have been defined.
On either side of the strat- egy map, the figure identifies the methodologies available for use at the next strategy review and update in four areas: the customer value proposi- tion, employee engagement, corporate social responsibilities, and compli- ance and risk management.
Because the company updates its strategy incrementally each year, most of the tools are used for data gathering and performance assessment. For example, the customer value proposition methodologies are used to collect customer satisfaction scores from external customers, management, business lines, and branch offices.
Using these inputs, the bank updates its strategy for the next year. Its execution premium is summarized in the insert. BTMU became one of the world's top five financial institutions two years ahead of its original strategic plan.
By law, details about regulatory examinations cannot be disclosed in the United States. The OAS Statement Once the executive team has selected its strategy, it needs to codify it so that it can be communicated to all managers and employees. Advantage represents what the enterprise will do differently, better, or uniquely compared with competitors.
It describes the value proposition the company will offer to attract customers. The value proposition should describe those aspects of the buying experience or relationship that the company intends to offer uniquely or significantly better than competitors. It can be expressed in traditional strategy terms, such as low cost or dif- ferentiation through product features, services, or customer relationships. The scope defines the market segment in which the enterprise intends to compete and win.
Scope can be a targeted customer segment, the breadth of the product line, the technologies employed, the geographic locations served, or the degree of vertical integration which value chain activities it will perform.
For example, consider how the OAS framework might be used to de- scribe the strategy of Southwest Airlines To be the most profitable U. A to travelers who are price sensitive and who value convenient flights S The company's objective is un surprising, to be the most profitable air- line. The time frame is omitted, because it is already number 1 on this metric and it likely wants to retain this position. Its advantage, as previously de- scribed, is to offer the speed of airplanes at the price and convenience of cars, buses, and passenger trains.
Its scope is to appeal to price-sensitive travelers, who are willing to endure the inconvenience of unreserved seats, a mass boarding process, and no premium classes or airport lounges for the op- portunity to travel at low prices between cities at airplane speed and ar- rive on-time. This example shows how the organization's vision and high-level strategy can be expressed in a crisp and powerful OAS state- ment of fewer than fifty words.
Before moving to the planning process, the executive team can capture the creativity of the strategy development process and carry it forward using a technique we call strategy direction statements, as shown in Figure Managers, after conducting their strategic analysis, prepare a direction statement for each of the identified strategic issues.
A direction statement is like a vision state- ment for each strategic issue. The strategy direction statement spawns three components that are critical to the subsequent development of de- tailed plans: Strategic objectives: These define the specific goal to be achieved.
Do- Wells: These identify the critical few activities that must be mastered if the objective is to be achieved. Do-wells become critical inputs to the subsequent design of strategy maps and initiatives. Preliminary measures: These are a first pass at the potential mea- sures to be used on the Balanced Scorecard. FIGURE Strategy formulation resolves the issues and establishes the new directions "Provide a superior shopping experience through con- venience, attractive presen- tation, and professional personnel.
Growth sent the brand in unpre- 2. Merchandising classic and adventurous. Inventory and continue to train appealing and customer- 7. Organization and people and reinforce our store friendly manner. Similar strategy direction statements are prepared for each identified strate- gic issue, facilitating the translation of the formulated strategy into the next stage: developing the strategic plan of action. But this year something changed.
We're now in a phase where our existing business model has encountered some new challenges. Our next meeting will require an intensive review of our strat- egy, likely leading to major new directions. A strategy, whether good or bad, eventually runs its course. A company's competitors observe successful strategies and eventually adapt to counter the advantages created by the first mover. The competitive moves typi- cally take three years or more to affect a company's performance.
Peter Aldridge, head of HSBC Rail, proactively launched a major strategic review even while the company was delivering excellent finaacial performance. Aldridge noted that even though HSBC Rail was currently enjoying a patch of good weather, he could see storm clouds approaching from various directions. HSBC, the parent corporation, was asking for major improvements in capital utilization.
A key stakeholder, the u. Department for Transport, was looking to greatly improve the value for money it received from subsidizing the u. Industry trends such as environmental and climate concerns as well as growth in passenger and freight traffic would put pressures on HSBC Rail's existing strategy.
Rather than wait for the storm to arrive, Aldridge launched a series of ten workshops for senior and middle managers. The initial workshops explored four future scenarios. The managers studied each scenario and identified common priorities and drivers for each one. The workshops helped people truly understand and accept the purpose mission , vision, and values of the organization.
This agreement set the stage for develop- ing the new strategy and making it actionable through a strategy map and Balanced Scorecard we will present HSBC's strategy map in Chapter 8.
Our tentative conclusion from surveying clients and conference atten- dees is that new strategies generally have a three- to five-year useful life. Within this period, the companies make incremental strategy changes each year assuming that the existing strategy is delivering successful per- formance.
Only when the company sees that the strategy has run its course, experiences a major transformational event, or begins to fail does it decide to consider a new, transformational strategy. To develop a new, transformational strategy, a company might start by reexamining and changing major components of the existing strategy, in- cluding the long-term mission, values, vision, and strategic themes, as well as financial mission expectations, customer niche and value propo- sition, key strategic processes, and enabling human, information, and or- ganizational capital capabilities.
Triggers of a Transformational Strategy The trigger of a transformational strategy can be negative, such as the burning platform of a failed strategy. Under pressure from a burning platform, an organization has high motivation to seek a new strategy rather than con- tinue to be immolated by the failed existing strategy. The appointment of a new leader, especially one from outside the or- ganization, triggers a comprehensive review and a transformational up- date of the existing strategy.
New leaders frequently are summoned to deal with burning platforms, but leadership changes have become the norm in all organizations, including the public sector, where new civilian leaders are appointed after elections, and in the military, where leaders have limited-term tenure. In that dot-com boom, many companies talked about being "amazoned. Clay Chris- tensen, among others, has documented how technological change has dis- rupted existing strategies in many industries.
It could be a change in the regulatory regime, such as when new competition is al- lowed to enter an existing market or when companies are allowed to enter new markets and business segments previously proscribed to them.
In summary, companies can introduce a new transformational strat- egy either on a regularly scheduled basis, as done by organizations like Ricoh every three years, or when the executive team recognizes that its ex- isting strategy has run its course and a new approach is needed.
For exam- ple, Andy Grove triggered Intel's transformational strategy shift from memory chips to microprocessors in the s when he asked his manage- ment team, "If we were starting the company today, would we be building capacity to produce commodity memory chips? During the preceding four years, MVCI's annual review made only minor changes in the existing strategy, a practice that seemed to be work- ing fine. But, as noted by Sweeney in the earlier quotation, in the strat- egy's fifth year, the competitive environment had changed so much that the executive team realized that its existing strategy needed to be redone.
In advance of the next annual strategy meeting, the organization made a major investment in management time and analysis to understand its new competitive environment, setting the stage for a new and transformative strategy to be developed at the meeting.
On one level, the annual strategy update process had worked, with a new strategy introduced as business conditions changed. But as one senior officer stated, "I'm not happy with the planning process that we used a year ago. If we had done a better job with our environmental scan and been more disciplined with analysis of the data we had on hand at the prior annual strategy update meeting, we could have seen the problems coming a year earlier and dramatically improved our reaction time.
The value of moving a year earlier in our business is enormous! Even Trigger: "The fundamental a bit of work with our then it was an execution phase.
There difference between this year strategy That's were some bold ideas but not a lot We tell a similar story in Chapter 9 about a convenience store chain, Store A special-purpose study-an after-the-fact statistical analysis of the cause-and-effect linkages on the strategy map-revealed that the com- pany could have signaled the failure of its existing strategy one year ear- lier than it took the management team to recognize the problem.
Thus, even when the existing strategy seems to be working and no major changes are apparently indicated, the executive team may still want to perform a careful analysis each year of external changes and internal data to validate that the existing strategy should be continued for another year.
In Chapter 9 we return to this use of operational performance data to in- form the annual strategy update meeting. The two extremes of fine-tuning the existing strategy or introducing a transformational strategy are not the only possibilities for implementing strategic change.
As we will discuss in Chapter 3, strategy usually consists of several simultaneous strategic themes. One of these themes may require dramatic revision, whereas the remaining ones require little or no change.
So Chase changed the goal for its customer relationship strategic theme to "retaining assets" rather than "retaining customers," striving to keep only profitable customers. Chase's strategic themes for corporate branding, opera- tions excellence, and developing employee capabilities remained unchanged. At the meeting, the team reviews and reaffirms the company's mis- sion, values, and vision statements.
It analyzes external and internal information, and summarizes critical strategic issues in a SWOT analy- sis. If the executive team sees that major strategic and culture change is required in the years ahead, it clarifies the need for change through a strategic change agenda that it can communicate throughout the organization.
If the existing strategy is still functioning effectively, the team may choose to make only incremental changes to it. But given that all strate- gies have only a finite effective life-typically five years or less-the execu- tive team periodically draws on a wide range of strategy formulation tools to develop a transformational strategy that will guide the company for- ward for the next several years.
Indigo Annual Report. Nolan and D. Kaplan and N. Collins and 1. Recently, a sixth force, the role of complementors, has been added to the five forces framework. See M. Learned, C. Christensen, K. An- drews, and W D. Numerous articles and books have been written on strategy formulation.
Here are some of the most important: Porter, M. New York: Free Press, Republished with a new introduction, Porter, M. Barney, J. Gaining and Sustaining Competitive Advantage. Oxford: Oxford University Press, Hamel, G. Competing for the Future. Boston: Harvard Busi- ness School Press, Collis, D. Kim, W c. Blue Ocean Strategy. Boston: Harvard Business School Press, Christensen, C.
Zook, c. Mintzberg, H. COSO is the abbreviation for the Committee of Sponsoring Organizations of the Treadway Commission, a voluntary private-sector organization that sets stan- dards for business ethics, internal controls, and corporate governance. Zook and J. Allen, Profit from the Core. Kim and Mauborgne, Blue Ocean Strategy. This section draws upon material from D. Collis and M. The Execution Premium. The authors describe a multistage system that enables you to gain measurable benefits from your carefully formulated business strategy.
Drawing on extensive research and detailed case studies from a broad array of industries, they present a systematic framework for achieving the financial results promised by your strategy. Execution Premium. This collection highlights the most important ideas and concepts from Robert S. Without strong visionary leadership, strategy will not be executed effectively. The second key issue is to recognize that strategy and operations or tactics are both important but different.
The normal course of events is for companies to focus on day-to-day operations and short-term problem solving. Management meetings focus on fighting fires and fixing problems. Often little time and few resources are committed to strategic issues. But we do advocate that planning strategy, not just describing it, is important. The senior management team needs to have regular, probably monthly, meetings that focus only on strategy.
We describe in the book the different roles, frequencies, participants, and agendas for operational review meetings and strategy review meetings. Q: What are typical challenges and pitfalls when linking strategy with operations? Why is a formal strategy execution system valuable? A: One challenge or pitfall is that few companies align their operational improvement activities to strategic priorities. Many companies today are practicing Total Quality Management, Six Sigma, or other continuous improvement activities.
But these are done across the organization with no sense of priorities or impact from process improvements.
Consequently, much effort does not show up in tangible results. Companies need a formal process for using strategic objectives to set priorities for where operational improvements can have the largest impact on strategy execution.
We note that quality and process improvement programs are like teaching people how to fish. Strategy maps and scorecards teach people where to fish. Another pitfall occurs when budgeting and financial planning are done separately from strategic planning. We advocate that the operational plan and budget be driven from the revenue targets in the strategic plan. In The Execution Premium, we describe how a time-driven activity-based cost model provides the previously missing link between the revenue growth targets in a strategic plan and the authorization for spending to supply the quantities of resource capacity that are necessary to fulfill the sales and production needs of the strategic plan.
Without this coupling, operational plans either provide too little or too much capacity for the strategic plan. A third challenge is that most management meetings get consumed with discussions about short-term operational and tactical issues.
It is important to meet to discuss and solve operational problems. In that way, each meeting has its own frequency, agenda, information system, and participation, as best meets the goals for that meeting.
Q: Given the proliferation of tools, how should management choose the right one to formulate strategy and improve operations? We have seen each approach lead to success in different circumstances. If, for example, the company has low capital utilization, then some use of a value-based management approach would help to define a financial strategy. Prahalad and V. If the company has distinctive capabilities in important business processes-- operations management, customer data mining, or product features and innovation- -that are superior to or not possessed by competitors, then the resource-based view and identification of core competencies are effective frameworks for strategy formulation.
If the company has a great human capital base, with skilled, experienced, and highly motivated employees, then striving to create a learning organization and encouraging emergent strategies to be proposed can identify promising new strategic approaches.
While we are agnostic with respect to which strategy methodology a company uses to arrive at its strategy, we do believe that creating a strategy map and scorecard for that strategy is the logical and proven next step for putting the strategy into action.
That is why we have placed strategy analysis and formulation as Stage 1 of our management system, with planning and translating the strategy as Stage 2. We take the same position with the various operational improvement methodologies. That is why we place planning operations in Stage 4 of the management system, downstream from the Stage 2 processes of translating and planning the strategy.
Q: What is an Office of Strategy Management, and why is it necessary in a company? The general is responsible and accountable for developing the strategy to win wars and battles. The chief-of-staff does not create strategy or operational tactics and has no authority or accountability for its execution.
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