Six stage strategy execution approach of Robert Kaplan and David Norton

Edited by Bill Cotton CA

Readers of this column will know that Robert Kaplan and David Norton have been at the forefront of
developments in the area of Strategic Management Accounting (SMA). Mr Kaplan is known in his own right for introducing the world to Activity-Based Costing (ABC) in the 1980s. He and Mr Norton were the founders of the Balanced Scorecard approach to performance measurement and management in the 1990s. Since then, they have developed a number of aspects of SMA including “Time-Based ABC”, and “Linking Strategy to Budgets”. Their latest approach involves a comprehensive and integrated management system that links strategy formulation and planning with operational execution. They have
called it “Integrating strategy planning and operational execution – a six-stage system”. The approach was rolled out in an article titled “Mastering the Management System” in the January 2008 issue of the Harvard Business Review. The ideas are expanded in a book titled The Execution Premium, published in July 2008.

The six-stage management system

The six-stage management system consists of the following steps.

1. Develop the strategy.
2. Plan the strategy.
3. Align the organisation with the strategy.
4. Plan operations.
5. Monitor and learn.
6. Test and adapt the strategy.

Stage 1: Develop the strategy using such tools as mission and vision statements, external analysis tools
including PESTE analysis and Porter’s five forces, SWOT analysis, blue ocean strategies, scenario planning, dynamic simulations and war-gaming.

In this regard, companies need to answer three questions.
i) What business are we in and why?
ii) What are the key issues we face?
iii) How can we best compete?

Stage 2: Plan the strategy using such tools as balanced scorecards and strategy maps. Mr Kaplan and Mr Norton advocate addressing five questions at this stage.

i) How do we describe our strategy?
ii) How do we measure our plan?
iii) What action programmes does our strategy need?
iv) How do we finance our initiatives?
v) Who will lead strategy execution?

Stage 3: Align employees with the strategy through a formal communications process, and by linking
employees’ personal objectives and incentives to strategic objectives. This will not necessarily be easy but may be facilitated by “cascading down” balanced scorecards and strategy maps to all organisational units. Three critical questions need to be addressed at this stage.

i) How do we ensure that all business units are aligned?
ii) How do we align support units with business unit and corporate strategies?
iii) How do we motivate employees to help us execute the strategy?

Stage 4: Plan operations using such tools as rolling forecasts and budgets, process management, process
dashboards, activity-based costing and resource capacity planning. Two major questions need to be answered in respect of stage 4.

i) Which business process improvements are most critical for executing the strategy?
ii) How do we link strategy with operating plans and budgets?

Stage 5: Monitor and learn about barriers, problems and challenges. This will be achieved through a carefully designed structure of management review meetings. These meetings should be short, highly focused, data-driven and action-oriented. The review meetings need to focus on two key questions.

i) Are our operations under control?
ii) Are we executing our strategy well?

Stage 6: Test and adapt the strategy using internal data on operations and external data on the economic and competitive environment. This will launch a new cycle of integrated strategy
planning and operational execution.

Conclusion:

It would be fair to observe that there is nothing radically new in this six-stage process. But it does provide a cohesive structure for aligning strategy planning and operational execution. The Harvard
Business Review article provides more detail about the six stages, and it is expected that the book will be even more comprehensive and include some real-life case studies.

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