Balanced Scorecard Report 2011 PDF

Balanced Scorecard Report t os the st rate g...

Balanced Scorecard Report t os the st rate g y e x e cu t i o n s o u r c e Article Reprint No. B1101A rP yo The Office of Strategy Management— The State of the Art, 2011 By David Norton and Randall H. Russell op tC No Do This document is authorized for educator review use only by Angel Araujo, Universidad Francisco de Vitoria until Oct 2024. Copying or posting is an infringement of copyright. [email protected] or 617.783.7860  t os rP yo op tC No Do Sign up for any of Harvard Business For reprint and subscription information For customized and quantity Publishing’s ­e-mail newsletters at for Balanced Scorecard Report: orders of reprints: www.enewsletters.hbr.org Call 800-988-0866 or 617-783-7500 Call 617-783-7626   Fax 617-783-7658 http://bsr.hbr.org For permission to copy or republish: This document is authorized for educator review use only by Angel Araujo, Universidad Francisco de Vitoria until Oct 2024. Copying or posting is an infringement of copyright. Call 617-783-7587 [email protected] or 617.783.7860  j a n u a r y – f e b r u a ry 2011 : vol 13 no 1 t os The Office of Strategy Management— The OSM Concept in Practice Originally, the OSM was conceived The State of the Art, 2011 to handle up to nine functions. Later design formulations include 10 or By David Norton, Director and Founder, and Randall H. Russell, more roles and responsibilities. But no rP Vice President and Director of Research, Palladium Group, Inc. matter how many specific functions or processes the OSM is responsible for, at Many organizations throughout the world have already established its core it plays three primary roles: an Office of Strategy Management (OSM). Palladium Group has worked with more than 70 organizations that have embraced the 1. A  rchitect of the integrated strategy management system. The OSM is concept and adapted it to fit within their unique contexts, and responsible for defining the strategy through the Palladium Balanced Scorecard Hall of Fame, has learned management framework and its yo of many more OSM implementations. In this article, Norton and governance conventions, as well as Russell (who have worked extensively with OSMs) review the current designing the strategy management state of the art of this management innovation, highlighting exam- processes themselves. ples of noteworthy practices at Hall of Fame organizations. They also 2. P  rocess owner of certain strategy offer several suggestions about next-generation adaptations. management processes. Among those it is uniquely qualified to orchestrate It’s been more than six years since Robert Kaplan and David Norton introduced op are designing strategy maps and the concept of the Office of Strategy Management (OSM)—first, in the May–June scorecards, cascading the scorecards 2004 BSR article “Strategic Management: An Emerging Profession,” and then throughout the organization to more definitively in the October 2005 Harvard Business Review article “The Office ensure alignment, and managing the of Strategy Management.” Kaplan and Norton recommended the OSM as an strategy reporting process. approach that organizations could take to help close the gap between strategy development and execution. In theory, an OSM brings together the people 3. C  onsultant and coordinator with tC responsible for formulating strategy with those responsible for executing it. other key strategy support functions, Bringing these specialists together under the same umbrella should markedly such as finance, HR, and IT. The OSM improve the chances of executing the strategy. And, given the role that the works with these departments to Balanced Scorecard plays for many organizations—making the strategy both ensure that the necessary resources measurable and manageable—it seems likely that those that have adopted the are available to enable strategic BSC would be at the forefront of this organizational innovation. initiatives. This role can also include focusing on process management to No In practice, the OSM has become an essential ingredient for any organization that ensure that the strategy is linked to wants to ensure the survivability of its strategy management system. But that’s the operational system: overseeing no guarantee the OSM will endure. Even organizations that have achieved break- process analysis, reengineering, and throughs in strategy execution run the risk that a change in executive leadership quality management. might result in the OSM’s elimination. It’s a fact of organizational life that the arrival of a new CEO often means that winning concepts are scrapped to allow room for Recently we examined the approach the new leader’s brand of leadership and execution. taken by Hall of Fame organizations in assuming these three roles. Figure 1 Now that the OSM has reached critical mass of sorts, it seems appropriate to look presents data derived from 20 organiza- at the state of the art in its design, roles and responsibilities, staffing, and report- Do tions; 10 each from the for-profit and ing lines. We also wonder what organizations are doing to institutionalize the government/nonprofit sectors. practice—much as many have done with their strategy management system in general—to protect it against the vagaries of leadership changes. Through multiple These Hall of Fame organizations have surveys and interviews, we investigated these practices and plans among exem- clearly taken the OSM message to heart. plars of strategy execution: Palladium BSC Hall of Fame winners. All of them are using the OSM to play the role of architect. In these organiza- tions, the OSM takes the leadership role This document is authorized for educator review use only by Angel Araujo, Universidad Francisco de Vitoria until Oct 2024. Copying or posting is an infringement of copyright. [email protected] or 617.783.7860  in defining and overseeing the strategy organization gov’t/nonprofit for-profit average management system (i.e., its processes), t architect and is also responsible for overseeing Define Process 100% 86% 93% its ongoing evolution. In addition, many os Oversee Process 100% 100% 100% of these OSMs have undertaken the role of process owner for all seven of process owner the processes listed. The majority of the 1. Develop Strategy 100% 72% 86% nonprofit organizations (72%) assume 2. Translate Strategy 86% 100% 93% responsibility for initiative planning, 3A. Align Organization 100% 86% 93% osm roles rP whereas fewer than half of the for- 3B. Communicate Strategy 58% 72% 65% profit organizations play this role (44%). 4A. Plan Initiatives 72% 44% 58% In contrast, 86% of OSMs in both sectors 4B. Manage Initiatives 86% 86% 86% assume responsibility for initiative 5,6. Review Strategy 100% 86% 93% management. (To be clear, by “planning initiatives,” we mean being instrumen- integrate with others tal in designing and administering a Human Capital 16% 44% 30% yo Financial Resources 44% 44% 44% process for rationalizing and prioritizing IT Resources 16% 16% 16% initiatives in conjunction with resource Key Business Processes 44% 44% 44% allocation and planning; by “manag- Quality Programs 58% 30% 44% ing initiatives,” we’re referring to the Best Practice Sharing 44% 58% 51% ongoing process of monitoring initiative performance against targets, evaluating their strategic relevance over time, Significant Some No Responsibility Responsibility Responsibility op and assessing the performance of the portfolio of initiatives—rather than FIGURE 1: HALL OF FAME ORGANIZATIONS’ ADOPTION OF OSM ROLES project managing.) We believe that AND RESPONSIBILITIES most, if not all, organizations will come The greatest difference between for-profits and governments/nonprofits in a to value the role of the OSM in both process ownership role is in planning initiatives. initiative planning and initiative man- bank had it to do over, our contact said, or educate the marketplace. Histori- tC agement and that any residual political “Build the OSM faster. What’s important cally the people responsible for setting resistance to the idea will continue to is having sufficient capability to support strategic direction and performance erode in most organizations. the business units. It’s not necessary to monitoring have worked through the The OSM at New Zealand’s Kiwibank is have a large OSM, but it is important for existing communication capabilities the steward of enterprise portfolio man- a small number of people to be able to (i.e., corporate communications) of their agement and coordinator of strategic develop skills in critical areas so that organization. initiatives. It influences the allocation needs can be addressed quickly.” No We have seen many examples where of resources for these initiatives and In the course of developing a well- those responsible for strategy execution ensures that the initiatives are balanced integrated management system, it have been frustrated by the inadequa- across strategic themes. The OSM also makes sense that an organizational cies of the existing communication runs the bank’s Strategy Network, which entity that is responsible for managing system. Corporate communications facilitates best practice sharing. It sits a process also plays a significant role departments don’t always do a good job within the business transformation in planning that process’s activity. of communicating the strategy. Many team alongside the business improve- organizations with an OSM have let the ment (Lean Six Sigma) team. This Another example of this reasoning— OSM assume responsibility for strategy the logic of connecting planning and Do arrangement helps embed process im- communications; in our sample of Hall provement and operational excellence managing activities—concerns the of Fame organizations, more than half in the bank’s organizational DNA. Re- OSM’s role in strategy communication. have taken this on (58% of the non- cently the program management office Most organizations have a corporate profits and 72% of the for-profits). We (PMO) was also co-located within the communications office that is respon- believe that organizations will increas- business transformation team. When sible for connecting with internal and ingly adopt this approach. They will asked what it would do differently if the external audiences, whether to share either establish their own communica- news, explain the strategic direction, This document is authorized for educator review use only by Angel Araujo, Universidad Francisco de Vitoria until Oct 2024. Copying or posting is an infringement of copyright. [email protected] or 617.783.7860 24 B alanced S corecard R eport  + theme leaders. This OSM team docu- ments issues that require cross- SIZE OF OSM STAFF (NUMBER OF FTEs) 20 t organizational decision making. And 18 it ensures that strategic priorities, os 16 identified during strategy reviews, are brought up at operational review meet- 14 ings and assigned to appropriate opera- 12 tions personnel for implementation. 10 The core OSM team is responsible for rP capturing important strategic informa- 8 tion and uses its knowledge to tap other 6 parts of the organization for action. 4 Other organizations reveal a different story through the size of their OSM. For 2 example, at Grupo Modelo, the OSM became very large during the time of yo 300–1,000 1,001–5,000 5,001–10,000 10,001–100,000 this survey because of a major reengi- NUMBER OF EMPLOYEES neering and systems integration effort. = Gov't/Nonprofit organization = For-profit organization And because of the strategic importance FIGURE 2: OSM STAFF SIZE IN 18 HALL OF FAME ORGANIZATIONS of this project, the reengineering team Most OSMs, regardless of organizational size, had between 5 and 10 FTEs, as shown was temporarily attached to the OSM. by the dashed box. Apart from this special circumstance, there are currently eight FTEs in the op tion capabilities in the interest of more equivalents) are needed to get the job company’s OSM. Another 10 to 12 effectively executing their strategies, done? After all, there is a limit to how people are responsible for initiative or they will work more closely with the long your senior staff can accept the management, and a distributed group existing corporate communications responsibility of managing so crucial a of 25 individuals (one per scorecard) office to ensure that people there are task as strategy on nights and week- spends about half its time on strategy up to speed on the importance and ends. We examine this question through management activities. In total, there tC implications of the strategy. Helping the lens of 18 Hall of Fame organiza- are 20 FTEs with another 25 half-timers. people understand the strategy—and tions. (See Figure 2.) In other cases, larger OSM organizations their role in making it happen—is one reflect the combination of other func- The area outlined with the dashed box of the most powerful levers that an OSM tional specialties that are considered shows that the predominant response is has available. to be strategically important, such as somewhere in the range of 5 to 10 FTEs. This finding holds across a wide range of risk management, quality management, Size organization sizes. The right size for the the project management office, and so No By now the evidence is clear: the OSM OSM seems to be the same whether your on. We discuss the implications of these has become a valuable organizational organization has only a few hundred developments a bit later. structure for making strategy execution a sustainable capability in any organiza- or tens of thousands of employees. The Reporting Relationship tion. Based on a 2009 survey of 25 Hall primary activities of the OSM require As is true with much of organizational of Fame organizations (conducted to a core team to design and administer life, the higher an entity’s reporting lines establish the benchmark for strategy the processes. Then, depending on the in an organization, the more important management processes), nearly all (84%) size of the organization, the strategy the entity is considered to be. We have have established this function. Most of management model can be imple- argued for many years that strategy Do the rest are in the planning phase. But, mented by leveraging an extended team execution is the most important respon- given the long list of roles and respon- of FTEs assigned to the strategy execu- sibility of the chief executive officer— sibilities that an OSM can assume, the tion process across the organization. For after all, it’s in the job title! Any CEO who question arises, How large should the example, at Bahrain Electricity and wants to execute strategy successfully OSM be? How many FTEs (full-time Water Authority, an eight-member core should play a direct role in overseeing OSM team is responsible for coaching This document is authorized for educator review use only by Angel Araujo, Universidad Francisco de Vitoria until Oct 2024. Copying or posting is an infringement of copyright. [email protected] or 617.783.7860 jan u ar y – febr u ar y 2 0 1 1 : v ol 1 3 no 1 35  report to report to overseeing the strategy management report to top one level down two levels down system) and the process owner role t gov’t/nonprofit 40% 60% 0 (develop, translate, and review strategy using strategy maps, BSCs, and their os for-profit 80% 20% 0 related elements; align the organization; total 60% 40% 0 and plan and manage initiatives). Once it has mastered the basics, the OSM moves to the next phase: integrating the FIGURE 3: OSM REPORTING LEVELS FOR HALL OF FAME ORGANIZATIONS We wonder: Why the disparity between for-profits and governments/nonprofits? basic strategy management processes rP with other specialized functions that also have a cross-cutting role in the or orchestrating this function. We have based on these examples, we would organization. So, in phase 2, the OSM therefore advocated that the OSM proclaim this to be a best practice works increasingly closely with HR, report directly to the CEO. The next best example—what other organizations Finance, and IT to ensure that the right option is reporting to a direct report of should strive for. mix of resources is available to enable the CEO (such as the CFO or the COO) At the pediatric healthcare institution the strategic resources called for by the and allowing direct access to the CEO yo Nemours, the Nemours Center for strategy and may also begin to link through a dotted line reporting relation- Process Excellence (effectively its OSM) strategy with operations. For example, ship. We call this a dual relationship. reports directly to CEO David Bailey. a new strategic initiative to provide Any other reporting relationship (two or The center supports enterprise strat- training to a customer support service more levels away from the CEO) is a bad egy by developing teams of internal center could require funding to obtain sign. It could mean that the CEO doesn’t educational and business process new software, select staff or recruit view strategy execution as part of his consultants who are deployed where new personnel, and provide IT integra- responsibility. Or it could mean that the op needed to promote an understanding of tion services to embed the new tools OSM is still early on in the process of the strategy management system and in the support infrastructure. All these “educating up” and that the CEO doesn’t to improve processes to meet perfor- resources must be lined up as part yet appreciate the value of investing mance targets. Says Bailey, “The OSM of bringing the new initiative online. in a Balanced Scorecard and strategy was the single most important factor in Making the link to operations often management system. For many organi- the success of our strategy execution requires that OSM personnel develop zations, the journey from performance program.” tC expertise in process design and in- measurement to strategy management novation along with a focus on quality can take months, if not years. The Nemours case provides fitting management (e.g., Lean Six Sigma). The testimony to our call for positioning In our sample of 20 Hall of Fame organi- ownership and mastery of strategic the OSM at the level of other senior zations, the OSMs report directly either communications are other competen- staff offices. Reporting to the CEO (or no to the CEO or to an executive one level cies that the OSM usually takes on more than one layer down) signals the down. (See Figure 3.) In this figure, we during phase 1 or 2. importance that strategy execution is see that for-profit firms typically have No given and the authority it can then use Once the basics are well established and the OSM report directly to the top of the to ensure that its roles are performed as the OSM reaches its second phase of house. In nonprofits this arrangement and responsibilities met. maturity, it often begins to play an even happens in fewer than half of the organi- larger organization-wide role by provid- zations. In mission-driven organizations, The Evolution of Process ing a home for other cross-business it’s possible that strategy effectiveness Ownership functions. Specialty capabilities such as is viewed in less concrete terms than By tracking the evolution of OSMs, we risk management, project management, in for-profit firms, where success is have witnessed growth in the roles and innovation, and even financial control often measured in financial terms. This responsibilities OSMs have taken on. have been assigned to the OSM in some Do difference in outlook might explain There appear to be at least three phases instances. For example, BancoEstado the apparent difference in reporting in the evolutionary life cycle of OSM Microempresas, Chile’s first micro- approach taken by these two sectors. organizations. During the first phase, lender and a market leader in Latin Nevertheless, in no instance does the the OSM deals with the basics of strat- America, grew its OSM into the Office of distance between the OSM and the CEO egy management: the processes that fall Strategy Development and Control over span more than a single level. Therefore, within the architect role (defining and the course of four years. (See Figure 4.) This document is authorized for educator review use only by Angel Araujo, Universidad Francisco de Vitoria until Oct 2024. Copying or posting is an infringement of copyright. [email protected] or 617.783.7860 64 B alanced S corecard R eport  By mastering the basics, this OSM was sibility it has assumed. For example, at Financial Control able to become the locus of an expand- China’s Rainbow Department Store the t ing set of roles that now includes OSM goes by the name Department of strategic planning, project manage- Strategy Management and includes the os Innovation Innovation ment, ownership of the strategic control strategy planning, process management, model, innovation, and, in 2010, financial and initiative management functions, Strategic Control Strategic Control Strategic Control Model Model Model control. This OSM reports functionally the latter two added in 2008. At the to the planning division but also works Bahrain Ministry of Works, the Strategic Project Project Project Project Management Management Management Management directly with the CEO. Planning and Quality Management rP Section now integrates with the Project During this evolution, BancoEstado’s Strategic Strategic Strategic Strategic Management Office. And at Lakshmi Planning Planning Planning Planning OSM grew from three FTEs in 2006 to 11. Machine Works, the OSM is now In addition to hosting strategic man- 2006 2007–2008 2009 2010 called the Office of Strategy and Risk agement meetings, this OSM convenes Management. FIGURE 4: EVOLUTION OF strategic learning workshops in which RESPONSIBILITIES OF BANCOESTADO management teams meet to share These examples support the idea that MICROEMPRESAS’S OSM lessons about strategy execution and because successful strategy execution yo operations throughout the organiza- requires a cross-functional integrative the context of the strategic agenda. tion. The strategic learning workshops function—à la the Office of Strategy Especially during the early years of an provide a forum for developing leader- Management—this function can OSM, it is critical to establish a track ship and building high-performance become the home of other special- record of successful implementation teams that gain an understanding of ized functions as well. Thus, we see upon which additional responsibilities can be based. Better to tackle the basics before accepting new roles that cannot op Strategy execution is the most important responsibility of the effectively be shouldered. CEO. Therefore, any CEO who wants to execute strategy successfully Bahrain’s Ministry of Works focuses should play a direct role in overseeing or orchestrating this function. on managing and improving strategy through the lessons it gleans from reviewing strategy performance and how their contributions yield strategic many examples of how risk, quality, tC execution. These lessons provide the performance outcomes. sustainability, project management, feedback that the ministry uses to and other specialized functions can At Korea Customs Service (KCS), the OSM refine and adapt the strategy. The OSM benefit from being brought under this was initially operated separately from is responsible for conducting quality umbrella. However, a word of caution the organization’s strategic planning, assessments of strategy documentation, is in order here. The OSM is intended budgeting, and finance units. Cross-unit implementation activities, and best to provide guidance and integration to communication and collaboration practices. Philosophically, it views such specialized capabilities when they suffered, hampering strategy execution. strategy as a hypothesis that must be No constitute important resources required KCS took corrective action by consolidat- tested and refined. Therefore, strategy by the strategy. But the OSM should not ing performance management, strategic is constantly evolving. This mental be viewed as a parking lot for specialties model facilitates organizational agility planning, budgeting, and finance under that are not truly strategic. For example, because managers willingly respond one roof—the Planning and Coordina- large-scale reengineering efforts or to feedback from strategy updates tion Bureau. Today its OSM includes ambitious IT investment projects may that may require action before the next 14 full-time employees and reports to not be strategically aligned, and yet regularly scheduled review cycle. the bureau director, with dotted line there may be pressure to locate them reporting to the CEO. under an office that, by its very name, Next-Generation OSM Do The evolution of an OSM’s role within creates an aura of strategic significance. We have now laid out a model for the organization is often reflected in We advise strategy management of- evolving your OSM. The three phases— its name, which may change over time ficers to assess the political motivation introduction (mastering the basics), to signal the broader areas of respon- of any would-be partners to confirm integration (collaborating with other the legitimacy of the new initiative in This document is authorized for educator review use only by Angel Araujo, Universidad Francisco de Vitoria until Oct 2024. Copying or posting is an infringement of copyright. [email protected] or 617.783.7860 jan u ar y – febr u ar y 2 0 1 1 : v ol 1 3 no 1 75  specialized functions), and extension (giving a home to other extended t capabilities)—provide a growth trajec- tory that will occupy even the most Six-year os Strategy cycle planning aggressively Strategy-Focused Organiza- refined (formulating) annually tions for three or more years. Making your OSM evergreen is an important requirement once you have successfully implemented your first- rP Strategy generation OSM. For many organiza- Strategy management Quarterly Operationalizing (executing, aligning, review tions, the initial incarnation of the OSM integrating, meetings is dedicated to managing the traditional monitoring) activities associated with the Kaplan- Norton Balanced Scorecard methodol- ogy: translating the strategy (building strategy maps and scorecards) and Operational Operational yo Monthly aligning the organization (including progress management Performance and (project Learning communicating the strategy). But these reports management) are only two of the six stages of the Kaplan-Norton Execution Premium model. Once these basic capabilities are established, the OSM must expand its FIGURE 5: THE CYCLE OF STRATEGY REVIEW AND IMPLEMENTATION AT BAHRAIN’S capabilities to facilitate strategy MINISTRY OF WORKS The OSM is at the heart of the strategy cycle at this government organization. op reporting and reviews (to answer the question, “Is the strategy working?”) and then move on to further test and adapt the strategy (“Is this the right strategy?”). David P. Norton, along with Randall H. Russell (BSR’s The closed-loop system then brings you Robert S. Kaplan, created the executive editor) facilitates a Balanced Scorecard concept. global community of strategy back to the beginning of the process, The two have coauthored execution professionals (Office and strategy development begins anew. tC five books (most recently, The of Strategy Management— The OSM can and should play a role in Execution Premium, 2008) Advisory) that meets regularly and eight articles for Harvard to share best practices, learn each of these stages, as either an Business Review, and dozens about next-generation prac- architect, a process owner, or a process of articles for Balanced tices, and advance the strategy consultant or coordinator. Bahrain’s Scorecard Report. They have management profession. He Ministry of Works provides a useful also been named among also leads Palladium’s Execu- the world’s most influential tion Premium Assessment example of how the Kaplan-Norton business thinkers by Suntop practice. philosophy is used to drive the continu- Media’s “Thinkers 50.” No ing cycle of strategy execution, review, and update. (See Figure 5.) Continue the dialogue Join Randy Russell in a conversation with other members of the global community on the question “How mature is your OSM?” at www.thepalladiumgroup.com/bsr/ OSMStateOfTheArt. Reprint #B1101A Do This document is authorized for educator review use only by Angel Araujo, Universidad Francisco de Vitoria until Oct 2024. Copying or posting is an infringement of copyright. [email protected] or 617.783.7860 jan u ar y – febr u ar y 2 0 1 1 : v ol 1 3 no 1 8