Institute
Corporate Sector Corner
Kaplan and Norton’s six-stage
strategy execution approach
Edited by Bill Cotton CA
R
eaders 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.
66 Chartered Accountants Journal July 2008
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. J