Strategy Execution + TDABC: close the loop with real cost

01The closed-loop system

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.

Develop the strategy

Clarify mission, values and vision; analyse the competitive environment and formulate the strategy.

Plan the strategy

Translate the strategy into objectives with the Balanced Scorecard and strategy maps.

Tools

Balanced ScorecardStrategy maps

Align the organisation

Align business units, support functions and employees with the strategy.

Plan operations

Resource allocation, capacity planning, process improvement and profitability planning. This is where strategy meets money.

Where TDABC lives

The cost stage

Cost and capacity

Monitor and learn

Review operational and strategic performance in dedicated meetings, with real data.

Test and adapt

Test the strategy hypotheses and adapt it, closing the loop and starting again.

Source: Kaplan and Norton, The Execution Premium, 2008. The closed loop is coordinated by an Office of Strategy Management.

02Stage 4 · Plan operations

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.

03TDABC at Stage 4

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.

Stage 4

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.

Stage 5

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.

04Closing the loop

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.

Stages 1 to 3

Strategy

Develop, plan and align. The scorecard and strategy map set the destination.

Stage 4 · TDABC

Operations

TDABC costs resources, capacity and profitability. It is the layer that prices the strategy.

Stages 5 and 6

Monitor and adapt

Real margin feeds the review. The strategy hypothesis is tested and adapted.

The loop

Back to strategy

What was learned about cost and margin reshapes the next turn of the strategy.

05What we deliver

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.

06Who it is for

For those who need Stage 4 to be real.

01
CFOs and heads of strategy running an Execution Premium or closed-loop system who need Stage 4 to be real.
02
Office of Strategy Management leaders who need to link the scorecard to operations with cost.
03
Organisations whose strategy stalls between the scorecard and operations.
04
PMOs that cannot cost their initiatives and prioritise them by real impact.

Function

CFO / FinanceHead of strategyOffice of Strategy ManagementPMO

System

Execution PremiumBalanced ScorecardClosed loop

07Frequently asked questions

What people ask before starting.

What is the Execution Premium?

The Execution Premium is the closed-loop management system described by Kaplan and Norton in 2008. It links strategy to operations across six stages, from developing the strategy to testing and adapting it, so that the strategy you formulate becomes real results.

What are the six stages?

One: develop the strategy. Two: plan the strategy, with the Balanced Scorecard and strategy maps. Three: align the organisation. Four: plan operations, with resource allocation, process improvement and profitability planning. Five: monitor and learn. Six: test and adapt. The loop then closes and begins again.

Where does TDABC fit in the six stages?

At Stage 4, Plan Operations. It is the stage where strategy meets money: resource allocation, capacity planning, process improvement and profitability planning. TDABC costs those decisions by activity, product and customer, and feeds Stage 5 with real margin.

Who created it?

Robert Kaplan and David Norton, in their 2008 book The Execution Premium. It is the direct continuation of their work on the Balanced Scorecard and strategy maps, now organised into a closed-loop management system.

How does this relate to the Balanced Scorecard?

The Balanced Scorecard and strategy maps are Stage 2, plan the strategy. The Execution Premium places the scorecard inside a larger loop and connects it to operations. We work the cost side of that loop. See also our Balanced Scorecard and TDABC page.

Do we need an Office of Strategy Management?

It is not mandatory, but it helps. Kaplan and Norton propose an Office of Strategy Management to coordinate the closed loop. Whether or not you have a formal function, what matters is that someone owns the link between the scorecard and operations. That is the link we make real with cost.

How long does it take?

For a first link between the strategic plan and operations, we deliver a TDABC model wired to Stage 4 in 6 to 10 weeks. You receive the resource allocation, capacity planning and profitability view that feed the monitoring stage.

Do we need CostCTRL?

Not to start. We build the model and it is yours. CostCTRL, our platform at costctrl.com, is there to keep the loop live: it updates capacities, recomputes cost and margin and keeps Stage 4 connected to monitoring over time, instead of the model dying in a spreadsheet.

Most strategies do not fail in the plan. They fail in the operations.