In the corporate market, it's common to see organizations that fail to implement strategy execution. The failure rate is so high that it reaches 70 to 90% of organizations, according to Norton and Kaplan (2005). We've already discussed on the blog some reasons why a company fails in strategic management, and one of them is the lack of a dedicated team in what we call a “strategic management office.” Related to this topic alone, we list below 6 reasons for you to assign a dedicated team to strategy planning and execution in your company.
Why create a Strategic Management Office?
1. Common practices do not yield different results
It is known that companies that have reached a more advanced level in strategy place the BSC – Balanced Scorecard at the center of their management system. The differential lies in aligning all internal processes according to the strategy. To do this, it is necessary to assemble a team dedicated to developing and implementing the required internal changes. The big mistake companies make is planning, budgeting, allocating resources, monitoring performance, and revising planning in the same way they always have, without actually causing a change in the mode modus operandi from the company. If you don't change the way you work, how can you expect to have different results?
2. Disintegrated planning
Another common problem with strategic management being done by different units without an integrated and consistent vision is that the process usually starts sometime in the middle of the fiscal year, when the strategic planning department organizes an off-site meeting for the executive leadership team to update the strategy based on an analysis of the company's strengths, weaknesses, opportunities, and threats, and new knowledge acquired since the last strategy meeting, a year ago. The planning happens quite well, but then gets lost because the executives lack a simple framework for communicating the strategy to the company. Furthermore, business units and shared services units (Human Resources and Information Technology, for example) typically do their planning separately, so they do not reflect how they should work together to achieve integration and synergy.
3. Budget-independent strategy
Concomitantly with the strategic planning period, the finance department dedicates itself to preparing the following year's budget, defining the amounts that will be allocated to operations, projects, and investments, and setting financial goals for the next year, including revenues, expenses, operating margins, and profit. Again, in most companies, this process is not synchronized with strategic planning. According to Norton and Kaplan (2005), 60% of companies do not connect their budgets to strategic planning.
4. Variable remuneration without strategic link
Another aggravating factor is that the company's variable compensation policy is completely aligned with the strategic plan. As a rule, it is at the end of the year that the HR (Human Resources) department evaluates employees' annual performance for the distribution of awards and bonuses. Consequently, all employees update their individual plan for the following year. However, the vast majority of managers and employees have no incentive or compensation for aligning their operational plans with the organization's strategic objectives.
5. The eternal excuse of lacking time
When there isn't someone solely responsible for ensuring the execution of the company's strategy, periodic review and progress meetings on goals and objectives, linked to the budget, get lost with the managers“ famous excuse of ”there isn't enough time.“ In reality, if there isn't an area that takes this lead, managers will hardly prioritize this issue, as it's simpler to focus on tactical actions and ”firefighting," which demand less time and effort in the short term but only minimize the problem without solving it.
6. Unfocused internal communication
Most large companies have an internal communications department that frequently transmits information to employees, but rarely do these sent messages relate to the organization's strategy. The vast majority of employees do not understand the strategy of the business they work in, nor do they understand who is close to the consumers. Furthermore, those who operate the internal processes should be the first to understand the global strategy, as only then can they contribute to the effective fulfillment of the organization's objectives.
With so many uncoordinated and diffuse processes, it's not hard to understand why the strategic execution failure rate for companies is so high. Successful companies, instead of dedicating themselves to creating palliative methods, dedicate themselves to transforming internal processes into effective and efficient processes, and then focus on executing strategy. The creation of a Strategic Management Office fills the gap in most companies' management structures. Organizations typically have offices that manage finance, human resources, information technology, marketing, strategic planning, and quality. But few have an office or department with primary responsibility for strategy management. Although we know that achieving goals is the responsibility of line managers and employees, it is noted that without central guidance and coordination, many objectives are omitted in practice, and uncoordinated processes lead to poor execution of the strategic plan.
Does your company have a strategic management office? Tell us about it!
