Most strategies do not fail in the plan. They fail in the operations.
Kaplan and Norton's six-stage Execution Premium closes the loop from strategy to operations. Stage 4, Plan Operations, is where cost and capacity decisions live, and TDABC is what makes it real.
Six stages that link strategy to operations.
In The Execution Premium, 2008, Kaplan and Norton describe a closed-loop management system. Most strategies do not fail in formulation, they fail in execution. Stage 4 is where execution meets money.
Source: Kaplan and Norton, The Execution Premium, 2008. The closed loop is coordinated by an Office of Strategy Management.
Without real cost, Stage 4 is guesswork.
Plan operations is resource allocation, capacity planning, process improvement and profitability planning. Without real cost, it is budgets built on last year plus a percent, capacity assumed rather than measured, and process priorities chosen by gut.
Resources without activity cost
Allocating resources without the real cost per activity moves budget without knowing what each activity consumes. The strategy's priorities go unpriced.
Capacity without practical capacity
Planning capacity without measuring practical capacity hides what is paid for and not used. The strategy calls for growth, and no one knows if there is slack or a shortfall.
Profitability on averages
Planning profitability on averages hides which products and customers the strategy should grow and which it should fix. The average lies at both ends.
The gap. Strategy becomes profit at Stage 4, and Stage 4 needs real cost. That is the gap TDABC closes.
TDABC turns the plan into measured decisions.
With the capacity cost rate and time equations, TDABC turns Stage 4 into measured decisions: which processes to fund, what capacity to add or remove, which products and customers the strategy should grow or fix. And it feeds Stage 5, monitor, with real margin, closing the loop.
Plan operations on real cost and capacity
Resource allocation now costs each activity by the minute consumed. Capacity planning starts from practical capacity and reveals the slack. Process-improvement priorities stop being a guess.
Monitor on real margin, not revenue
The monitoring stage stops looking only at revenue and volume. It now sees real margin by product and customer, which turns strategic review meetings into conversations about profit, not sales.
Cost is the layer that closes the loop.
Strategy, stages 1 to 3. Operations, Stage 4, where TDABC lives. Monitor and adapt, stages 5 and 6. And back to strategy. Cost connects each turn of the loop: it is what an Office of Strategy Management needs to make the scorecard real.
A TDABC model wired to Stage 4, and the team that knows how to keep it.
Model wired to Stage 4
A TDABC operating model wired to the plan: resource, capacity and profitability.
Costed process priorities
Costed process-improvement priorities, so you know what to fund first.
Profitability view
A profitability view by product and customer that feeds the monitoring stage.
Strategy map to cost
A costed link from the strategy map to operations, from Stage 2 to Stage 4.
CostCtrl platform
CostCtrl to keep the loop live: capacities, costs and margins recomputed over time.
Independent, fixed-scope, 6 to 10 weeks. We do not sell strategy or scorecards. We work the cost side of the loop, Stage 4, and connect it to monitoring. It is the half most leave undone.
For those who need Stage 4 to be real.
- 01CFOs and heads of strategy running an Execution Premium or closed-loop system who need Stage 4 to be real.
- 02Office of Strategy Management leaders who need to link the scorecard to operations with cost.
- 03Organisations whose strategy stalls between the scorecard and operations.
- 04PMOs that cannot cost their initiatives and prioritise them by real impact.
The complete Kaplan system, with cost as the backbone.
What people ask before starting.
What is the Execution Premium?
What are the six stages?
Where does TDABC fit in the six stages?
Who created it?
How does this relate to the Balanced Scorecard?
Do we need an Office of Strategy Management?
How long does it take?
Do we need CostCtrl?
Related: Balanced Scorecard + TDABC · Cost-to-serve · Profit-driven budgeting · Free Profit Check
Sources
Canonical works behind this method. Each opens in a new tab.
- BookThe Execution Premium: Linking Strategy to Operations for Competitive AdvantageKaplan, R. S. & Norton, D. P. (2008). Harvard Business Press.Defines the six-stage closed-loop system linking strategy to operations.
- PaperHaving Trouble with Your Strategy? Then Map ItKaplan, R. S. & Norton, D. P. (2000). Harvard Business Review 78(5).Introduces strategy maps linking scorecard perspectives into cause-and-effect chains.
- PaperTime-Driven Activity-Based CostingKaplan, R. S. & Anderson, S. R. (2004). Harvard Business Review 82(11).The founding article defining TDABC and its two-parameter model.
Bring your strategy. We will make Stage 4 real with cost.
No deck, no follow-up sequence. A senior partner. Thirty minutes. Free. NDA on request.
Workshops
Bring the method into the room.
One working profitability model, built from real data, that you take home at the end.
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Reviewed by
Miguel Guimarães
Founding Partner, Cost and Profitability Consulting
More than 150 Time-Driven ABC engagements across 11 sectors since 2010, working within the Kaplan and Anderson framework.
About the author →Published
Proof
A distributor in New Zealand. €1.335M of cost-to-serve made visible, then halved, and 830 loss-making customers brought down to 295.
Read the case study →Who you would be talking to
Miguel Guimarães, Founding Partner
Cost and profitability practitioner for 25+ years. Presented the Damco cost-to-serve case at Managing for Profit (Amsterdam RAI, December 2009), on the same programme as Robert S. Kaplan.
Call +351 910 313 731