20 tips for managing strategy through the Execution Premium Process
From formulation to execution and learning, organizations often struggle with the strategic management cycle. Here are 20 tips that might aid that process. These have been organized according to the six stages of Dr Kaplan and Norton’s Execution Premium Process. Further tips will be added in due course.
Stage 1: Develop the strategy
1. Agree with a definition of strategy for the organization
The first step in any strategy formulation exercise. Get the senior team to agree on what they mean by the term strategy. Ask them to individually write down on a piece of paper what they understand by the term. Then ask them to read it out. The difference in understanding can be astounding.
Then debate and discuss and agree on what strategy means for the organization. Without an agreement, what possible chance do they have of shaping the most appropriate objectives or initiatives? And how can buy-in possibly be achieved? If the senior team doesn’t know what strategy means to the organization, how can anyone else?
2. Develop a quantified vision
When crafting a vision statement, make sure it is quantified: time-bound, measurable and capturing the essence of the value proposition. A quantified vision is an anchor for both the strategy development and execution phases.
As a good example, “By 20XX, our distinctive ability to integrate world-class research, scholarship and education will have secured us a place among the top 50 universities in the world.” From this, the value gap can be ascertained (the difference between the present and desired states). “Being the No 1 supplier to our customers” just doesn’t cut it.
3. Values are more than just behaviors
When designing/agreeing values with the executive team, ask them how driving these behaviours will be supported by significant changes to the following: policies, procedures, processes, information flows, decision making, metrics, and incentives.
Making values stick requires changes to the way the organization operates. If an organization has a value around trust, then it is inappropriate to require lower-level managers to require multiple sign-offs before spending relatively small amounts of money. If no significant changes are made, the values will be no more than “nice-sounding words” that no-one can argue with, but equally take no notice of.
Stage 2: Translate the strategy
4. Develop objective statements
An issue with Strategic Objectives is that they are limited to a few words, such as “Enhance Customer Experience.” Succinct yes, but its meaning will be interpreted in various ways as it cascades down the organization.
So, always write a meaningful objective statement. This should be just two short paragraphs. The first describes why the objective is strategically important and the second how it will be achieved. Doing so ensures the original meaning is not changed as it moves through the enterprise, is good for communication and is also invaluable in starting to think about KPIs and initiatives.
5. Capture the voice of the customer
When designing strategic objectives for the Customer Perspective, a common mistake is to create objectives that describe what the organization wants from the customer relationship: objectives such as increased customer loyalty or increase share of wallet abound.
The customer perspective represents outcomes that are of value “in the eyes of the customer.” Customers rarely procure a product or service because they want to be loyal or give the supplier more money. Write the objective as if it was said by the customer, such as: “Reliably provide me with quality water at a reasonable price,” or “Provide me with the highest quality of care in a safe and respectful environment.”
6. Reduce the number of KPIs
Organizations typically over-populate their Balanced Scorecards with KPIs. This is typically due to struggles to identify the most impactful measure for a strategic objective.
Consider using driver-based models to identify the most critical “do wells,” for delivering to the objective (as described in a well-designed objective statement). Then apply Key Performance Questions to those drivers. KPQ’s highlight what the organization needs to know in terms of delivering to the drivers, enabling a focused discussion on “how well” it is delivering to the “do wells”. Combining value drivers with KPQs helps ensure that the chosen KPIs more precisely measure progress to the strategic goals.
7. Do not put weightings on a strategy map
Many organizations “prioritize,” objectives on a Strategy Map, typically by assigning weightings. This signals a fundamental misunderstanding of how the Balanced Scorecard works. Weightings don’t come into it, which is not to say prioritization doesn’t happen.
A Strategy Map is a hypothesis of causal relationships: testing, learning, adapting. It is the interplay between objectives that matters. Putting a higher weight on an outcome objective makes no sense as it is delivered by enablers: conversely, putting a higher weighting on enablers is problematic if targeted outcomes are not achieved. Prioritization takes place through resourced initiatives and process improvements. At times, the priority might be given to the objectives within a specific theme, but over the lifetime of the strategy, all objectives are of equal importance.
8. Be more precise with “culture”
“Culture,” is routinely found in the Learning & Growth perspective of Strategy Maps. Often with supporting KPIs such as living the values and employee engagement. Not useful.
Rather think about what type of culture is required. “Develop a Culture of Innovation,” for example. Then focus the KPIs of developing this organizational mindset. Moreover, this can then be part of a strategic theme, making the link with internal processes visible. Consider naming the theme something like “Culture of Innovation,” to flag that culture is about how work gets done and is not just a people thing. Then Learning & Growth objectives can then be even more specific.
9. Stop obsessing about learning & growth KPIs
Organizations often spend an inordinate amount of time trying to define the ideal measures for Learning & Growth objectives (human, information and organizational capital). There’s an odd belief that we should be able to identify measures here that are as robust as for financial. Such thinking missing an important point.
The value of an intangible asset (and therefore of the KPI) is influenced by its interaction with other intangible assets: moreover, the value is contextual, depending upon alignment with the strategy. Overly obsessing about Learning & Growth KPIs often leads to failure to appreciate that the measures across this perspective have many inter-dependencies that together impact strategic processes. I encourage organizations to identify a “good” KPI but focus more on the interactions. Sometimes a KPI might be identified that impacts more than one objective: for this perspective, I sense is the direction we’re heading
10. Risk management is not an objective
I often have seen risk management as an objective within a Strategy Map. Although appropriate if the intent is to build risk management capabilities, it is a mistake if the goal is to manage strategic risks. These are two different things.
Risks impact each objective on the Strategy Map – financial and non-financial. For each strategic objective, leaders should identify the risk events that could lead to failure to achieve targeted performance. They should focus on mitigating strategic risks or even undertaking those that are deemed necessary to achieve the objective. At the outcome level, risks should be articulated as the effect, “what might happen,” while at the enabler level, “what might cause unwelcome outcomes.”
11. Initiatives are not business as usual
When I review Balanced Scorecards, I often find way too many strategic initiatives, and oftentimes these are operational or “business as usual,” and do not belong on a scorecard.
A strategic initiative has a start and end date is unique and should only be directly linked to the internal process and learning & growth perspectives (as it is what gets done here that delivers the financial and customer outcomes). Also, ideally initiatives should impact more than one strategic objective. Too many organizations focus on one-to-one links, that can be sub-optimal and very silo-focused.
Stage 3: Align the organization
12. Drive buy-in through the cascade process
The conventional approach to cascading Balanced Scorecards is typically a lengthy and time-consuming process, top-down driven and largely imposed. This rarely leads to buy-in and is no longer fit-for-purpose in today’s fast-moving markets.
Rather, identify the critical (and very few) objectives and KPIs to devolve, and then empower teams to build their scorecard systems that describe what they want to achieve over the coming period. As well as leading to greater buy-in and ownership, this transmits a message that senior management trusts their employees and believes in their abilities. Proper governance still ensures alignment but is guided by flexibility and empowerment instead of rigid imposition.
13. Lessen the use of the word strategy as you cascade
When cascading, use the term strategy less and less as it is taken deeper into the organization. Top-level executives should make strategy their number 1 priority and they can pull the levers to drive transformational change.
At deeper levels, such levers are not available, so focus on the “sense of purpose,” of the department or team – what they want to achieve over the coming period and work on linking this to the strategic goals. Also, focus on the building of new, or enhancing of, existing operational processes that support the strategy. And please do not talk about improving shareholder value.
14. Think about the visual impact of the map
Here’s an idea. A Strategy Map is a powerful communication tool, but somewhat uninspiring to look at. And when lots of arrows are included (purportedly to show cause and effect) there’s a strong resemblance to a plate of Spaghetti and Meatballs.
So, think about how to make the map more visually appealing. I advised one automotive company (that received many complaints about the “boring” map) to redesign it in the shape of a car – they did this and got great staff buy-in. I’ve also seen ships, roads and others. Makes the map a bit more organization-specific and meaningful.
Stage 4: Align operations
15. The Balanced Scorecard does not execute strategy
Despite popular belief, a Balanced Scorecard does not execute strategy. Designing a Strategy Map and selecting KPIs, targets and initiatives does not execute anything. It is just a plan. No-one gets fit by simply creating an exercise and eating plan.
Too often, the focus is firmly on building the scorecard system without taking account of the project and quality management capabilities required to execute the initiatives and process improvement interventions. Involve the project and quality experts early in the planning stage. Better still integrate them into the strategy office.
Stage 5: Monitor and learn
16. Not everything that can be counted, counts
Periodically, when preparing the report for the strategy review meeting, print these words from Albert Einstein on the front cover. “Not everything that counts can be counted, and not everything that can be counted, counts.” A gentle reminder that the meeting should be a conversation on performance and not a discussion on KPIs, which are simply an input into the discussion.
17. A KPI is an indicator of performance, not the whole story
When I work with strategic measures, I use the term Key Performance Indicators. The word indicator is important as the measure is an indicator of performance, not the complete answer. When measuring strategy, we are not seeking absolute measures of performance, but input into a performance-focused conversation. A KPI is the beginning of that conversation, not the end.
And don’t forget the importance of Key. Rather than figuring out the most important indicators, there’s often a tendency to continually add measures to the management information structure, leading to the organization being overwhelmed with indicators. Consequently, the strategically critical “signals” from key indicators can be lost in the noise of the many that are non-key.
18. Analysis shows that KPIs can be very misleading
KPIs can provide a “score” that is misleading. Consider Simpson’s Paradox, where a trend appears in different groups of data but reverses on aggregation.
As a true example, a University was sued by a young woman claiming gender bias because the admission data showed that significantly more boys were being admitted than girls. However, data analysis showed that generally, girls were applying for competitive courses and boys for the less competitive courses. In reality, more girls were admitted to both the competitive and less competitive courses – but that’s not what the aggregate reported.
19. Consider putting learning & growth at the top of the strategy map
Here’s an idea. When displaying a Strategy Map, do so with Learning & Growth at the top. The causal “arrows” still flow to Financial but this has two benefits. 1) It communicates the overriding importance of people in driving strategy success, so sending a strong message to the organization. 2) In Strategy Review meetings, the conversations will begin with the capabilities we are developing not the ultimate results: too often, Learning & Growth is discussed last and, due to time and tiredness, often quickly if at all.
Stage 6: Test and adapt
20. Always think about the “function,” that the organization delivers
We talk about capturing “the voice of the customer” when defining customer objectives. But oftentimes, the customer does not know what they want. They, as with their suppliers, fall into the trap of believing they are buying a product. They are not.
Customers buy a “function” that fulfils a specific need. People did not buy coaches and horses, they bought a mechanism for travelling quickly and comfortably: cars did this much better. Kodak did not sell a film, they sold a way to capture images: the iPhone did this much more conveniently. Always ask, “what is the function we meet,” not what products we sell. Consider when reviewing whether the strategy is still appropriate.