The following summarizes each of the stages and sub-components of the Execution Premium Process (XPP). The expected output for each sub-component is captured, showing how it is an input into the next in the sequence.
In explaining the XPP, I have integrated some of my observations on how Strategy Management has evolved since the model was first introduced by Drs. Kaplan and Norton through their seminal 2008 work: The Execution Premium: Linking Strategy to Operations for Competitive Advantage.
A. Develop the Strategy
1. Define the Meaning of Strategy for the Organization
Strategy is understood differently by different people. There is no single universally accepted definition.
Not defining what Strategy means for the organization (and how it differs from operations) causes confusion in strategy design, implementation and communication,
It is expected that there will be varying interpretations of the meaning of Strategy within the senior team. It is critical that they shape a shared meaning.
Output: A definition of Strategy that is accepted by the senior team and is the anchor for all subsequent steps.
2. Create/Affirm Mission
A mission statement is the basic purpose of the organization. The mission is rarely industry or solution specific and is not something that, typically, can be actually fully achieved. Google’s mission is to “Organise the world’s information and make it universally accessible and useful”. This does not restrict Google to current content delivery formats and will never reach a point of completion.
The mission describes the fundamental purpose of the entity: “why we exist,” and does not change very often (indeed might be the same for a century!).
Output: Agreed mission for the organization
3. Create/Affirm Values
Values are statements of beliefs, behavioural norms or ideals that guide the way a company thinks, acts and responds to situations.
Values describe the expected behaviours etc., which support the mission (but should tailored, if required to support the current Strategy of the organization.
The challenge with organizational values is to make them impactful. Values are not just about words and are certainly do not “come alive” simply by putting posters on walls. More often than not actualizing values requires changes to policies, processes, information flows, decision-rights and reward systems.
Output: Agreed set of values for the organization
4. Create/Affirm Vision
The strategic vision articulates the future direction and longer-term goals of the organization (typically over a 3 or 5-year horizon).
The vision should be written in a way that describes what the organization wishes to achieve over the lifetime of the strategy with quantifiable high-level measures and be time-bound (the end of the strategy horizon). This is referred to as a quantified vision.
I prefer to call this a Strategic Ambition which, in addition to being time-bound and with a quantifiable high-level measure, includes the key capabilities that the organization needs to develop or enhance to deliver to deliver the strategy.
Output: Agreed quantified vision for the organization.
5. Conduct an Analysis of the External Environment
The environment is constantly changing; business strategy must keep pace with those changes. The external environment consists of all outside influences impacting an organization. PESTEL is the most common tool used, along with Porter’s Five Forces, although many others are available.
The Pandemic, and subsequent economic shocks, has demonstrated that the environment is now constantly changing at a speed we hitherto did not experience. I argue that we live in an “Age of Uncertainty”.
External analysis must not ow be a one-off event, but an ongoing monitoring of what is happening.. Organizations must also develop the adaptive capabilities to continually align the internal workings of the organization with the fast-changing external environment.
Output: An understanding of the external environment in which the organization operates.
6. Conduct an Analysis of the Internal Environment
Here the organization analyses its internal structure and business model. Key tools here are Value Chain Analysis, Business Model Canvas, and Core Competency Analysis.
This internal analysis should now be “external-in” that is whether the internal workings of the organization are aligned to the external environment.
Output: An understanding of the internal environment in which the organization operates.
At this point the actual Strategic Plan is often developed. My preferences is that the Strategic Plan includes the findings from above, with an explanation of why this Strategy has been chosen and with high level goals, but also include the Corporate Balanced Scorecard, which explains how the Strategy will be implemented.
B. Translate the Strategy
1. Conduct Executive Interviews as step 1 in identifying the strategic objectives
Individual, confidential. interviews (of about 60 minutes) are held with the executive team (and oftentimes external board members). The individual one-to-one interviews provide insights into each executive’s concept of the organization’s strategy and performance, and is based on a template of questions against the four perspectives of the Strategy Map.
Questions should be open and not closed and focus should be on the strategic priorities and capabilities.
- What are the financial/budgetary objectives?
- Who are the customers, and what are their objectives?
- What internal processes support the financial and customer objectives and what capabilities do we need to develop these processes?
- What culture, competencies, and technology support the internal objectives and what capabilities do we need to develop these processes?
The results of the interviews should be reported back to the senior team the aggregate – this is what the leadership team thinks, not specific individuals.
This critical information-capture step should not be conducted in a workshop setting as this typically fails to capture the innermost thoughts of many key executives.
Output: An understanding of the strategic insights of key executives.
2. Create a Strategic Change Agenda
A “Strategic Change Agenda,” is a framework to consider and assess current state “As is…” and to project desired future states “To be…” for key change / performance dimensions of an organization.
A Strategic Change Agenda identifies the key performance dimensions (typically 2-4) within each scorecard perspective that are critical to organizational strategic success.
Output: A Strategic Change Agenda
3. Create a Strategy Map
Based on the “To be” of the Strategic Change Agenda, a draft Corporate Strategy Map is developed by the core team and then amended/confirmed through a workshop with the executive team: evidence from previous steps is used to explain the rationale for map design.
Leading practice is to arrange the Strategy Map according to Strategic Themes, which:
• Help to focus the organization on arriving at the strategic destination
• Are usually limited to 3–4 major business thrusts
• Include a stream of linked objectives
• May slice across all four scorecard perspectives, but are conventionally confined to the internal perspective
Output: A Corporate Level Strategy Map
4. Write Statements for Each Strategic Objective
Objective Statements are definitions of each Strategic Objective that ensure consistent interpretation of the objectives.
Statements are succinct and communicate everything necessary to achieve the objective and reduce ambiguity.
i. Why is it important?
ii. What are we trying to accomplish?
iii. How are we going to accomplish it?
Output: statements for each objective
5. Develop Strategic KPIs
Based on the Strategy Map and objective statements, the core team drafts a scorecard of Key Performance Indicators (KPI). Each objective sdhould be supported by 1-2 Key Performance indicators (KPI).
KPIs for financial and customer perspectives are “lagging” measures (what has been achieved), whereas internal process and learning and growth comprise a mix of lagging and leading (indications of the likelihood of lag KPIs being delivered).
Importantly, KPIs should be first identified for the financial perspective (tailored in a Government/Not-for-Profit setting) and then for the next on the hierarchy. This ensures causality is central to the scorecard design.
Output: a set of Strategic KPIs
6. Develop Performance Targets
Each KPI requires a supporting performance target. The target should be stretching (in that it represents a tangible improvement in performance) and realistically achievable. A target to the end of the strategy horizon is supported by milestone targets (typically quarterly).
Targets should close the Performance Gap on KPIs and collectively the value gap of the organization.
Output: A set of Strategic Targets
7.Select Strategic Initiatives
Strategic initiatives need to be chosen to close the performance gap against one, or ideally more, KPIs. Initiatives should:
- Aim to significantly change the way we do things (initiatives are not business as usual or repeatable projects and should not deliver incremental change).
• Close a Performance Gap of KPIs, thus supporting an objective on the Strategy Map
• Have sponsorship at the leadership team level
• Have definitive start and stop dates, and progress milestones.
• Have committed resource allocation (human & capital)
Leading practice is to manage initiatives through the strategic themes and should only be selected for the enabler perspectives (internal process and learning & growth) and not for the outcome perspectives (customer and financial) as the latter are the “outcomes” of the work in the other two perspectives.
Output: a portfolio of strategic initiatives
8.Create a Strategic Governance Model
A strategic governance model is required to ensure an effective management and reporting structure is in place.
The model should be managed by a Strategy Office (or Office of Strategy Management), which should have the requisite capabilities to facilitate the Balanced Scorecard management process.
Output: a strategic management governance model.
9. Set Roles and Responsibilities
Roles must be identified for themes, objectives, KPIs and initiatives. A RACI model is often deployed here: responsible, accountable, consulted, and informed.
Output: clear accountabilities for performance
C. Align the Organization
1. Design Approach for Cascading Corporate Strategy Map and Balanced Scorecard to Business Units (or next level down in the hierarchy)
In cascading the Balanced Scorecard System, organizations must decide on the type, or mix of approaches to use: identical, contributory, new.
Identical: relevant elements (objectives, KPIs, initiatives and sometimes targets) are identical to those on the corporate map and scorecard: typical in organizations with identical operating models, such as McDonalds.
Contributory: some elements are translated to articulate the direct contribution of the specific unit: typical where there is much in common at the business unit but differences in local approach (for example, reduce waiting time at the business unit to contribute to streamline services at the corporate level).
New: The unit develops new elements that are strategically important to the unit, but not large enough in impact to appear on the Corporate Balanced Scorecard (common in diversified organizations).
Output: Agreed model for cascading the corporate Strategy Map.
2. Cascade Corporate Strategy Map and Balanced Scorecard to Support units
Support units (such as HR, IT, and Finance) directly contribute to or support Internal Processes and Learning & Growth Strategic Objectives across the organization.
In a Support Unit Strategy Map, the customer is the business units of the organization (and so is not a direct cascade from the corporate scorecard, which is externally focused).
The internal process perspective is the support unit’s own processes that deliver their customer outcomes, while the Learning & Growth Perspective focuses on the skills, technology hat the unit requires to deliver its own internal process objectives.
Output: Aligned Strategy Maps and Balanced Scorecards at the support unit level.
3. Cascade Business Unit or Support Scorecards to the Individual Employee level.
Individual scorecards help create line of sight from the Strategy and what the individual does every day. They should have about six-eight objectives, with supporting KPIs. Driver-based performance models can be used to identify objectives. The Learning and Growth objectives within a personal scorecard represents the employee’s own personal development.
Output: Individual objectives aligned to business unit and corporate..
4. Develop a Communication Plan
There is a correlation between organizational performance and how well the Strategy is communicated to employees. Communication is critical for buy-in and for the individual to understand the ultimate value of their own contributions. It is also critical for communicating the strategy to external stakeholders.
A communication plan should:
- Define the Target Audiences and their different needs
- Identify the message steams ( a continuing flow of information on a given subject)
- Choose the communication vehicles (face-to-face, email, social media, etc.)
- Measure, solicit feedback and foster learning
A communications calendar for the year must be created.
Output: A strategy communication plan
D. Plan Operations
1. Identify the key strategic process improvements linked with strategy
Strategic Process Improvement Programs (along with Strategic Initiatives) define how Strategic Objectives will be achieved. Commonly, organizations confuse operational actions/projects with Strategic Initiatives, leading to overblown Balanced Scorecards.
For each objective in the Internal Process Perspectives, use tools such as Lean and Six Sigma to identify how continuous improvement efforts can complement initiatives in strategy execution. Also identify the key improvement plans for Learning & Growth Perspective.
Outcome: improvement plans for enabler processes that significantly impact strategic objectives.
2. Develop Operational Dashboards
Aligning day-to-day operations with strategy is through developing operational dashboards that show a line-of sight with Strategic Objectives. Driver based performance models are used to decompose Strategic Objectives into operational drivers and measures, which are then captured on operational dashboards within the organization. Continuous improvement efforts are captured here.
Output: operational dashboards that are aligned to strategic goals.
This is not a Stage in the XPP process, which I personally believe to me a mistake as it often means that its importance is overlooked by organizations (and by consultants) in implementation.
Execution is where the Strategy is actually implemented.
Here (and oftentimes called a 7th Stage) is where the organizations manages and implements the identified Strategic Initiatives and Strategic Process Improvement Programs.
Not realizing the critical important of the Execution component of the XPP is a very costly mistake by organizations as not executing well obviously means the Strategy will fail.
E. Monitor and Learn
1. Collect and Analyze Data
Advanced Data Analytics is enabling organizations to convert their performance data into relevant information and knowledge, allowing management teams to hold richer and more informed performance conversations and make more evidence-based decisions,
In a data-rich analytic world, using the power of Advanced Data Analytics enables the testing of the causal assumptions that underpin the |Strategy and as captured in the Strategic Objectives, KPIs, and Strategic Initiatives.”
Organizations can pinpoint the specific components of a KPI that really make a difference and ensure that actions and initiatives are driving performance improvement against that element.
Perhaps most critically, Advanced Data Analytics enables organizations to get early warnings of sudden or emerging market/customer movements and trends and thus adapting the internal organizational working approaches as appropriate.
Output: An understanding of what has happened and what is likely to happen and so enabling the organization to respond in a timely and appropriate fashion.
2. Analyze Performance to Strategic Initiative
The success of Strategic Initiatives is the primary determinant of whether the Strategy is delivered. Reports on the progress of strategic initiatives must be collected, and an analysis completed of how the initiatives are impacting the Performance Gaps for the KPIs they support. Analysis should also consider whether the portfolio of Strategic Initiatives is comprehensive enough to close the value gap.
Output: understanding of how initiatives are impacting the strategy
3. Prepare a Strategy Report
Strategy Reports assess performance to the Strategy over a given period (typically quarterly). The reports are typically prepared by the Strategy Office, based on data provided by element owners as well as findings from the ongoing monitoring of how the operating environment is changing.
Strategy Reports should includes:
- Visual of Strategy Map and high level and brief summary of main analysis findings and recommendations.
- Commentary on objective performance (and their supporting KPIs) and next step recommendations. It should also include commentary on selected Strategic Process Improvement activities impacting objective performance.
- Commentary on initiative progress and their impact on the KPIs that they support.
Output: a comprehensive report on performance to the strategy.
4. Conduct a Strategy Review Meeting
Reports should be distributed one week prior to the meeting. The report is discussed during the meeting and follow-up actions logged. The strategy review meeting should focus on the future implications of information reported and to make required decisions. They should spend no more that 10% of the time discussing KPI details.
Meeting should last no more than 4 hours.
Output: Agreed strategic decisions.
F. Test and Adapt
1. Conduct Annual Strategic Hypothesis Review
Annual formal review of the Strategy takes place to ensure continued relevance of the Strategy and its underlying hypothesis.. The focus is on improving or transforming the Strategy and is informed by the Strategy Map, Balanced Scorecard, profitability reports, analytic studies of strategic hypotheses, external and competitive analyses, etc.
However, in this the Age of Uncertainty, such scheduled annual review sessions will become less important and useful. Such deep drill reviews will ne done as required and not “once a year.”
Output: Consensus on the relevance of the Strategy, which leads back into the first step of the cycle.
James Creelman is Director of the UK-based Cardinal Management Consulting, an Associate Director of Strategia Worldwide and the Strategy Management Practice Lead for Impact Consulting.
He is the author of 25 books and is currently co-authoring The Adaptive Organization: synchronizing the enterprise for success in the age of uncertainty (working title).
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