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The Execution Premium: Linking Strategy to Operations for Competitive Advantage Hardcover – June 17, 2008
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About the Author
Robert S. Kaplan is the Baker Foundation Professor at the Harvard Business School. He has been a codeveloper of both activity-based costing and the Balanced Scorecard. David P. Norton is a founder and director of the Palladium Group, a consultancy focusing on strategy execution, and is codeveloper of the Balanced Scorecard.
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This is a must read book for strategists, consultants and aspiring MBAs as it is a compendium of all the current approaches to strategy setting. This book's focus on integrative thinking is its greatest strength. K & N bring together Porter, Reichheld, their own work and other techniques such as PESTEL, TDABC and forceasting which are all relevant to one degree or another. If you only had money in your budget for one business book - I would recommend this one just for its sheer comprehensive coverage.
In the first paragraph K&N make an astute observation when they say that "operational effectiveness and strategy are both essential ... but they work in very different ways." That is true. Rather than providing a bridge between these two ways the rest of the chapter and the rest of the book focuses on the strategy processes. I was hoping for an operationally focused bridge between the two as that is how you move from strategy to results - but it was not there.
Do not let the title fool you, this book is about the execution of the strategy setting process. It is not about operational execution or even execution of the strategy (ala Bossidy and Charan's best seller EXECUTION). It not about how you realize an execution premium - that premium is assumed if you execute the balanced scorecard and strategy maps.
Given the title I was expecting to understand the financial, market value and performance `premium' one would get from following this approach. While some of that is in the book, its treatment seems to be more fortunate coincidence rather than an executed connection between the strategy and operations. That does not mean that this is a poor book, not at all, but if you are reading this to understand how to get an execution premium from delivering strategic goals in your operations, this is not the book.
Strengths - analytical and financial view of the company
* Comprehensive in covering all of the major tools and techniques currently used in formulating strategy. This is the strength of the first few chapters that focus on PETEL analysis and other techniques
* Consistent in their support and explanation of their key concepts, such as the balanced scorecard and strategy maps. This builds on the other K&N books.
* Process focused in laying out a strategy formulation process. The Roadmap for strategy processes is accurate and clear. The discussion of management meetings and reviews focused on the strategy (Chpt 7 and 8) is a plus.
* Information and Analytics a practical guide to using operational data in the strategy process. This is the primary focus of the plan operations step. The discussion and detailed examples are strength.
* Financial focus in providing examples of the financial approaches to strategy setting. This is particularly in the plan operations and the use of Time Driven Activity Based Costing Model.
Challenges - limited connection between the strategy and the way you manage and change operations to achieve the strategy.
* Avoids any real discussion of operational management, it is assumed that operational managers who have the right metrics will make the right decisions across the enterprise to achieve the goals.
* Assumes that enterprise strategic goals are mathematically decomposable. By that I mean that I can take a goal, divide it into smaller parts that add up to the whole goal and assume that if I achieve the parts I will achieve the goal. This is a vertical top down strategy view of the company, and ignores the horizontal, bottom up, process reality that creates results.
* Asserts the alignment fallacy by concentrating on aligning on the financial ends with no consideration of the means to achieve those ends across the enterprise.
* Pays limited attention to the core "Learning and Growth Disciplines" like HR and IT and by their omission. In fact at the end the book asserts "The company assumes that achieving the strategic objectives for human, information and organizational capital will drive improvement in critical strategic processes." P. 252 Anyone who has seen the impact of a less than successful HR, IT, or Re-organization knows that this is not an assumption that can be made with certainty, yet it's the only real discussion of these things in the book.
* Based on a lite version of a central planning model where the corporate core knows more and is more skilled than the operational front lines. Embodied in the Office of Strategy Management (OSM) the book creates a rational why companies should invest more in corporate functions rather than in operational execution -- very paternalistic view.
The fundamental challenge I have is that "The Execution Premium" is all head - analytical and financial with little to no discussion of the heart - how things actually work. The following quote sums it up from my point of view "The most successful Balanced Scorecard implementations have occurred when organizations skillfully melded the intrinsic motivation emanating from its leadership and communication program with the extrinsic motivation created by aligning personal performance objectives and incentive compensation." Page 149. For any one who has seen one manager optimize their function at the expense of all others, or those how feel that the "beatings will continue until moral improves, you know that sustainable execution requires more than lining up metrics on a piece of paper.
Chapter 1: Introduction - provides an overview of the challenges associated with strategy formulation and creation. Here they outline their basic process for strategy formulation and deployment
1) Develop the strategy
2) Plan the strategy
3) Align the operations with strategy
4) Plan Operations
5) Monitor and Learn
6) Test and adapt the strategy.
It's a good closed loop process - with the strategy as the primary object of the process. The rest of the chapters deal with each of these steps. The chapter ends with saying that this process is the responsibility of a new construct called the Office of Strategy Management
Chapter 2: Develop the Strategy - is the details in first step of the strategy setting process. Here is the detailed discussion of PESTEL (Political, Economic, Social, Technological, Environmental and Legal analysis framework). This is a good framework and the case study support is comprehensive.
The issue is that these are all discussions of how people have made strategies in the past - in an environment of predictable or foreseeable change. This is not the environment we are heading into, so it would have been good to see the strategy based on some latest proven best thinking rather than the strategy frameworks that are dominant for the past 20 years or so.
Chapter 3: Plan the Strategy - This chapter focuses on using K&Ns Balanced Scorecard tool and how it fits with strategy. This is a top down corporate driven process as it is performed by executives at the center. The examples are good and illustrative, but they also show the vertical thinking that dominates this approach (head) and the relative limited understanding of horizontal coordination and end-to-end implications (heart).
Chapter Four: Strategic Initiatives is based on a traditional view of corporate controlled transformation and organization. The initiatives break out into separate work streams whose plans and budgets all have to reconcile back to the core strategy - this is the decomposition issue mentioned above. There is some good discussion about initiative prioritization and funding through a new category called STRATEX - Strategy expenditure. The strategy deployment model discussed on page 119 - 122 is very traditional and corporate centric.
Chapter Five: Aligning Organizational Units and Employees is critical, but it's largely assumed to happen through aligning performance measures rather than the means to achieve those measures. The center controls all is best illustrated by the following quote "Corporate headquarters is like the coxswain in an eight-rower shell ... the coxswain adds value by understanding the competitive environment and the strengths and weakness of each rower and uses that insight to develop a coherent action plan." Page 126. If you are in the corporate center you agree heartily, but if you are on the line, the view may be stretching reality.
Chapter Six: Plan Operations - Align process improvement programs should be the heart and meat of the book and to some extent it is. There is a discussion of the planning process, which again is based on cascading from the top. The chapter does not tell you how you change operations to achieve strategy in a coordinated way. From what I read it's the use of TQM and/or Six Sigma to achieve you BSC goals - a sound approach, but hardly all that is required to deploy a strategy and get an execution premium.
Chapter Seven: Plan Operations - Sales Forecasts, Capacity, and Budgets. This is THE MEAT of the book and provides comprehensive discussions of new approaches to budgeting and Time Driven Activity Based Costing. This is the best part of the book, with some new ideas and great examples. Unfortunately again it's a financial metrics decomposition focus, which is necessary but not sufficient on its own to achieve an execution premium.
Chapter Eight: Operational and Strategy Review Meetings is a good chapter and recognizes that strategy is a living breathing thing that needs to be marked to the market and market conditions. This is a welcome chapter to help structure these meetings and not have them turn into rebudgeting sessions.
Chapter Nine: Meetings to Test and Adapt the Strategy is another good chapter that focuses on the strategy management process and somewhat on the daily or line =.
If you are still reading this review, thanks and I hope you can see why this book is great for the strategist and less effective for the operational manager who needs to execute the strategy.
The book ends with a discussion of the office of strategy management -- a corporate function that embodies the process that is discussed in this book. In that regard I am concerned about objectivity as the book is written to show all the work that needs to be done, begs the question who will do it, says that its the OSM that will do it and does not disclose that one of the authors consulting companies trains and certifies people to be in the OSM. I am not sure that centralizing these tasks into yet another corporate - non-operating function is the right idea and the commercial incentive implicit in the recommendation needs to be taken into consideration. It is not a huge deal, but something that the reader needs to understand and be aware of in terms of a bias.
Gery Sasko - Principal
Intrafocus Management Consulting