5+Essential+Principles+for+a+Better+Strategy+Review

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5 Essential Principles for a Better Strategy Revie

Drs Robert Kaplan & David Norton

How an organisation structures its strategy

review meetings has enormous impact on the

effectiveness of its strategy management ef-forts. The frequency of meetings, participant

roster, agenda format, whether or not to dis-

seminate results companywide: such choices

Point of Vie

Copyright 2015 Palladium

affect everything from the level of candour to

the quality of the decision making. We out-

line guiding principles for an effective strategy

review process, with examples of the diverse

approaches taken by best-practice BSC us-

ers.


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2 | 5 Essential Principles for a Better Strategy Review Copyright 2015 Palladium

Separate strategy

revies from operational

revies but account

for culture.

Most organisations have a structure for monitoring operational

performance. Such reviews, typically conducted monthly, focus

mainly on prot and loss, budget performance, variance analy-

sis, cash ows and sales forecasts in other words, short-term

operations. The entire review process has a quarterly orienta-

tion, both in terms of publicising results and acting upon them.

The monthly operational review, the backbone of the manage-

ment control system, is an essential of professional manage-ment; for most organisations, it is the onlymanagement meet-

ing. But with its operational agenda, little or no time is left for

strategy.

Some organisations have begun to correct this aw in their

management process. They recognise that the strategic plan,

built upon Balanced Scorecard objectives, measures and initia-

tives, provides a basis for monitoring and managing the strategy

and furthermore that strategy reviews and operations reviews

should be done in separate meetings held on separate days.

According to its CFO, DataMart2has a very transactional,

sales-driven culture. The discussion of short-term sales alwayssqueezes out the time scheduled for strategy. Figure 1shows

the approach DataMart developed to overcome this problem. A

subset of the executive committee meets each month to review

operational performance, focusing primarily on sales. In month

1

Though his management style was often controversial, former

Disney CEO Michael Eisners philosophy of meeting manage-

ment could hardly have been simpler: Call meetings about sub-

jects that really matter and show up.Meetings bring together the

constituents in an organisation who have either knowledge ora vested interest in the subject at hand. Restricting meetings to

subjects that matter keeps the organisation focused on its stra-

tegic agenda. And the leaders presence signals the importance

of the subject and the fact that decisions can and will be

made. What goes on outside of meetings is even more impor-

tant. Writing in the 1995 annual report to Disney shareholders,1

Eisner went on to say: Like Fathers Day at a grade school,

all homework miraculously gets done in advance. I sometimes

think the actual meeting is not what counts the most. It is the

preparation [for it] that everyone doesThats what counts.

The monthly or quarterly review meeting is the heartbeat ofthe strategy management process. On the surface, the issues

related to designing the strategy review process might seem pe-

destrian: Do we meet monthly or quarterly? Who should attend?

Should we look at data or discuss issues? Should we make

performance results visible to all employees? Weve learned that

the answers to such questions can make or break the strategy

review process and hence strategy execution itself.

While no single approach works for everyone, these ve princi-

ples provide a foundation for designing a sound strategy review

process.

1M.D. Eisner, Letter from the Chairman, The Walt Disney Annual Report, 1995.

2Organisation names in this article have been changed.


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5 Essential Principles for a Better Strategy Review | 3Copyright 2015 Palladium

three of every quarter the so-called quiet period of a public

company, in which executives cannot publicly disclose corpo-

rate results the entire executive committee meets for a day

and a half, the agenda focused exclusively on strategy.

PAS/Europe follows a similar approach. PAS holds a three-day

management meeting every other month. Day one of the meet-

ing is devoted to an operations review of the E10 units (those

in the ten smaller European countries in which it operates), while

day three is devoted to the operations of its E5 units (those

in the ve larger countries). On the middle day, executives and

management staff from all 15 countries review strategy. The

reviews are designed to promote a cross-business understand-

ing of the strategy, which for the most part cuts across national

boundaries.

CellCo went in the opposite direction. Originally, the companyheld separate meetings, but that didnt work, according to a

strategy executive: Our culture is built around the monthly op-

erations meeting. Thats where important business and resource

decisions get made. So we merged the strategy and operations

meetings. The CellCo executive team meets every month in

two half-day meetings; the morning is devoted to operations,

while the afternoon focuses on strategic issues.

Both the separate-meeting and combined-meeting approaches

can work. The organisations culture is the key to determining

which approach is most appropriate. The combined approach

takes an unusual degree of discipline. At most organisations,short-term issues dominate long-term ones, and tactics domi-

nate strategy. Addressing strategy and operations in separate

meetings on separate days generally provides the best structure

for developing a management team that thinks and acts strate-

gically.

OperationsReview

OperationsReview

Month 1 Month 2

Subset of executive committee Sales focus

StrategyReview

Month 3

Entire executive committee 1.5 days

Quiet period

No operations review

DataMart Quarterly review cycle

StrategyReview

Day 2

E10 and E5 combined Agenda includes sharing

best practices and reviewing

initiatives

Day 1

OperationsReview

E10 units

Day 3

OperationsReview

E5 units

PAS/Europe Bimonthly review cycle

AM

OperationsReview

Strategic overview (R/Y/G)

Detailed operational analysis

StrategyReview

PM

Strategic issues identied in

advance

CellCo Monthly review cycle

Figure 1: Balancing strategy reviews with operations reviews.


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Revie strategy

quarterly but find

other ays to keep

strategy top-of-mind.

How frequently should an organisation meet to review its strat-

egy? The last three examples provide no consensus on this

question. DataMart meets quarterly, PAS meets bimonthly, and

CellCo meets monthly.

Strategy, by nature, is long term. Market share, product quality,

new product development and employee competencies typi-

cal components of business strategy change little from monthto month. So progress on the strategy should theoretically be

reviewed on a less frequent basis say, quarterly. On the other

hand, if an organisation reviews strategy only once a quarter, the

strategy will not remain foremost on the management agenda

unless there is a concerted effort to keep it there: out of sight,

out of mind.

Eurobanks Portfolio Manager Solutions division adopted an ef-

fective solution. Their strategy consists of three themes: prod-

uct innovation, customer relationships and service excellence.

The divisional management team meets monthly to review

the strategy, with each meeting focusing on one of the three

themes. Though each theme gets reviewed once per quarter,the management team is still convening every month to man-

age strategy an interesting trade-off between the long-term

strategy review horizon and the short-term objective of building

a strategy-focused management team.

3

Build a strategy council.

Managing strategy means managing change. A

management team is needed to guide and ex-ecute the necessary changes. Who should be on

this team? Since the team must have the power

to make these changes, it should be built around

the top executive (the CEO or business unit

leader) and his or her leadership team (the executive commit-

tee). But the team also needs to have thebreadth of knowledge

required to make intelligent decisions on the diverse compo-

nents of the strategy. Moreover strategy requires cross-business

integrationof activities. The latter two points call for an expanded

committee in which knowledge and cross-business interests are

represented.

Of course, the choice of team members is often situational,

depending on the backgrounds of the individuals involved.

High-tech material manufacturer TekStyle Industries designed

its executive committee with strategy oversight in mind. The

15-member committee consists of the CEO, ve SBU managers

and four support unit managers, along with the ve individu-

als responsible for managing the strategic themes. In our view,

organisations should evolve toward the TekStyle model: make

the traditional executive committee the foundation and add

members who can provide a comprehensive strategic perspec-

tive and knowledge base. Assigning responsibility for individual

strategic themes to the new committee members is an excel-

lent way to legitimise these members relative to the traditionalmembers, who have existing power bases. Through manag-

ing their themes, the new members provide both the depth of

knowledge and the cross-business representation necessary to

complement the traditional structure. To differentiate the focus

of this new body, some organisations refer to it as the strategy

council.

2


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Use open reporting to

promote accountability,

transparency and

teamork.

The focus of the strategy management process is determined

by the reports that monitor progress against plan. Most organ-

isations get preoccupied with nding and formatting the infor-

mation in the reports and miss the bigger issues of culture and

change. How an organisation handles such simple questions as

Who should see the reports? or Might we embarrass people

when we show red status? can have a tremendous impact on

its culture. If people fear negative consequences from reportingnegative results, they may attempt to hide the results. These

seemingly simple questions actually present executives with an

opportunity to shape behaviour.

Take, for example, the issue we refer to as open reporting, or

transparency. Nest Egg Investments, attempting to introduce a

new strategy that required cross-selling and teamwork across

its traditional lines of business, encountered resistance from

LOB managers. These managers, while paying lip service to the

new strategic directions being introduced from above, adhered

to their old way of doing things. They were secure with the

power that comes from knowing the details of their business

better than anyone else. So the CEO tried a simple experiment:

4 he posted every LOBs Balanced Scorecard status report on thecompany intranet. Anyone anywhere in the organisation could

access these reports.

Almost immediately, the email network began buzzing. One

sales executive, observing the superior results achieved by a dif-

ferent LOB, set up a meeting to learn what they were doing dif-

ferently. Five HR directors formed a task force after discoveringthat each was struggling with developing account management

competencies. In effect, a horizontal network arose organically,

structured around the strategic issues of the organisation. The

open reporting approach moved the knowledge from the top of

the organisation to those responsible for executing the strategy.

A new performance-oriented culture emerged.

Open reporting creates an opportunity for any organisation to

shift the agenda and impart knowledge to those areas that can

do the most with it. Its also an effective way to build a new

power structure a strategy-focused power structure that

mobilises the lower ranks of the organisation to pursue the

agenda established at the top.


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Create issue-oriented

meeting agendas.

At the strategy review meeting, the most

powerful, highly paid people in the organisation

devote a day or more of their time to discussing

strategy. So how can organisations make these

meetings as effective as possible and get the best return on

this signicant investment?

Consider the two different approaches shown in Figure 2. Deni-

Data meets every quarter. The Balanced Scorecard serves as

the agenda for the meeting. Each executive with accountabil-

ity presents and interprets the data associated with his or her

measures. The group then explores alternative interpretations.From this data-focused discussion, a list of issues emerges.

Between review meetings, an ad hoc group renes this list, ana-

lysing the issue and identifying options. The groups analysis and

recommendations are presented at the next meeting for review,

modication and acceptance. Ultimately, this process yields an

update to the strategy.5

DefniData:

Data-focused meeting

Stratico, Inc.:

Issue-focused meeting

Data and

status report

reviewed

off-line

Issues surface

CEO selects

meeting isues

Executive team

explores issues

and selectspreferred options

OSM guides detailed

analysis of options

Implementation plan

Executive team reviews

recommendations

Decisions made

Strategy

updatedAt

meeting

Between

meetings

Data and status

report reviewedand discussed

Issue list

identied

Issues

focused

Options

identied

Analysis

performed

Executive team reviews

recommendations

Decisions made

Strategy

updated

At

meeting

Between

meetings

Monthn Monthn+1

Figure 2: The data-focused meeting ensures objectivity, but does not promote dialogue. The issue-focused meeting

ensures strategic discussion, but, by its nature, is less democratic.


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Stratico Inc. also meets quarterly. BSC status reports are circu-

lated to the executive committee well in advance of the meeting,

so members are expected to be familiar with them. Instead of

reviewing data, the meeting is devoted to discussing the two

or three most important issues, as determined by the ofceof strategy management with input from the CEO and a poll

conducted beforehand. This issue-focused discussion gener-

ally results in consensus on the option to be pursued. Between

meetings, the ofce of strategy management guides a detailed

analysis of the options and prepares an implementation plan,

which members will review and decide upon at the next meet-

ing. The strategy is then updated and the cycle repeats itself,

with new issues continually being introduced for discussion.

The data-focused approach ensures objectivity because the dis-

cussion is rooted in fact. It also encourages participation, allow-

ing everyone to offer his or her own interpretation of the facts.The downside: it invariably entails a one-way presentation of the

data, rather than dialogue. Attendees arent motivated to review

the data in advance since someone will be presenting it at the

meeting. Ultimately, this is not a good use of executives time.

The issue-focused approach ensures that strategic discussion

is a priority. To some extent, it sacrices the democratic aspects

of the committee, since the CEO or LOB president chooses the

agenda issues, albeit with committee input. But such guidance

keeps the discussion focused on strategy and valuable to all.

We believe rmly that the review meeting should focus on issues

instead of on their underlying data.

Clearly, data is essential for fostering insights and learning. But

the data is only a means to an end the end, of course, being

action, adjustment and progress toward the strategy. The ex-

ecutive teams time is best spent discussing the issues raised by

the data. In this way, issues are reviewed from multiple perspec-

tives, and the nature of the discussion also boosts buy-in to

new strategies or actions.

Governing Philosophy

Call meetings on subjects that matter and show up we have

seen that Eisners words are not quite as simple as they sound.But our research demonstrates that this basic philosophy,

when augmented with important principles of effective meet-

ing design, will help organisations achieve best practice-level

meetings. Managing strategy is different from managing operations:

this philosophy should govern your design of these meetings.

We must recognise what these differences are, especially since

the dominant culture of most organisations is operational. The

ve principles discussed here are derived from an understanding

of these differences and provide a blueprint for better strategy

execution.


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