StrategicManagementinPublicOrganizations

ByDavidOsborne

September2009

Manypublicorganizationsdostrategicplanning,buttheprocessoften

hastwomajorflaws.Itdevelopsastrategicplanthatisseparatefromthe

budget,anditfailstohelptheorganizationlearnwhichstrategiesandprograms

arenotworkingandmakethenecessaryadjustments.

Ingovernment,therealplanisthebudget.Toooften,organizations

developstrategicplansthatlayoutwheretheorganizationneedstogo,butthe

budgetdoesnotfollow.Strategicplanningisaboutrethinkinganorganization’s

strategies;donewell,itcanleadtoquantumleapsinstrategyandeffectiveness.

Buttraditionalbudgetingisincremental;itfundssomeversionofwhatwas

donelastyearandtheyearbeforethat.Becauseitisdifficulttogetnew

strategiesintobudgets,particularlyintimesoffiscalconstraint,muchofthe

strategicplanisneverputintoaction.

Whenstrategiesarefunded,toooftennoonecheckstoseewhetherthey

areproducingtheresultsintended.Hencetheorganizationremainsstuckwith

thestrategiesithasfunded,untilthenextroundofstrategicplanning.

Theseproblemsaresolvable.Publicorganizationscanlinkstrategic

planningwithbudgetingthroughaprocesscalledBudgetingforOutcomes,then

buildaperformancemanagementsystemtoassessresultsandmake

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corrections.Dozensofpublicorganizationshavedoneoneortheother,orboth.

Thoughspecificimplementationmethodswilldifferindifferingcircumstances,

thefollowingsteps,inroughlythisorder,wouldhelpmorepublicorganizations

dothesame.

1. Clarifymissionandvalues.

Tobeeffective,anorganizationshouldbeabletoarticulateitsmission

(ormissions)andvalueswithbriefstatementsthateveryoneinthe

organizationknows.Someorganizationsalreadyhavesuchstatements.Ifyour

organizationdoesn’t,orifyourleadersfeelthattheirexistingmissionand

valuesstatementsareeitherinadequateorunknowntomostemployees,you

shoulddraftormodifythem.

Slightmodificationscanbedonequickly,bytheorganization’shigh‐level

leaders.Iftheyneedtodraftnewstatementsorsubstantiallymodifyoldones,

theyshouldinvolvemanypeopleintheorganization,togettheirthoughtsand

achievebuy‐inthroughouttheranks.Suchstatementsareuselessunlessthe

employeesinternalizethemandactonthem.Missionandvaluesstatements

shouldbedesignedtolastforasignificantperiodoftime;theyarenot

somethingtobedoneeveryyearortwo.(Formoreoncraftingmission

statements,seeDavidOsborneandPeterPlastrik,TheReinventor’sFieldbook

(SanFrancisco:Jossey‐Bass,2000),pp.596‐599.)

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2. Articulateavisionofwhattheleadershipwantstocreate.

Intheirbook,TheLeadershipChallenge,JamesM.KouzesandBarryZ.

Posnerdefineavisionas"anidealanduniqueimageofthefutureforthe

commongood."

A vision is a mental picture of what tomorrow will look like. It expresses our highest standards and values. It sets us apart and makes us feel special. ... And if it's to be attractive to more than an insignificant few, it must appeal to all of those who have a stake in it.i

Thisisawonderfuldefinition.Butifvisioningisaboutnothingmore

thanastatement,ithaslittlevalue.Visioningneedstobeinformedbycareful

analysisandtoinvolvekeystakeholders,inspiringthemandwinningtheir

allegiance.Itshouldgivesomeindicationofhowtheycanrealizethevision—

whatprioritiestheymustpursue—thusactingasaspringboardforoutcome

goalsandstrategies.Tohavepower,inotherwords,visioningmustleadto

otherthings.

Whenvisioningworks,however,fewifanyforcesareaspowerful.A

visioningprocesscan:

• helpleadersstepoutsidetheboxoftheircurrentmindsetandthinkanewabouttheirorganization’sorcommunity'scondition,potential,andstrategicpriorities;

• helpbothleadersandcommunitymembersinternalizeanew

understandingofthechallengestheyface,anewvision,andanewpathtoachievethatvision‐‐anew"roadmap;"

• helpleadersfromdifferentpoliticalparties,institutions,andsectors

agreeonacommonvisionandgoals;

• actas"magnetsforcollaboration,"inspiringthousandsofpeopletoworktogethertoachieveacommonpurpose;

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• simplifythousandsofdecisionsandcutthroughmonthsofneedlessdiscussionbyprovidingaguidethatcanhelppeoplefigureoutwhattodoandwhatnolongerneedsdoing;and

• createanewvocabularythatcanreshapepublicperceptions.Formoredetailabouthowtocreatevisioningprocessesthatdothese

things,see“EffectiveVisioning,”byDavidOsborne.ii

3. Analyzetheorganization’smandates,strengths,weaknesses,

opportunities,andchallenges.

Thisanalysisofbothinternalandexternalconditions,oftencalleda

“SWOC”analysis(forstrengths,weaknesses,opportunities,andchallenges),can

beconductedbyateamofinternaland/orexternalconsultants,using

interviews,reviewsofdocuments,employeesurveys,customersurveys,and

otherformsofresearch.Theteamshouldgatherdatafromstaff,stakeholders

andcustomers—notjustatheadquarters,butinthefieldaswell.Theresearch

shouldincludeacarefulreviewofallorganizationalmandates,whetherfrom

thecourts,thelegislativebody,orthecharterorconstitution.

4. Analyzethegapbetweenwheretheorganizationistodayandthevision,

toidentifystrategicissuesitfaces.

Basedontheanalysisdoneinstep3,theteamwouldidentifykeyissues

thattheorganizationmustresolveifitistoachieveitsvision.Onceitsanalysis

iscomplete,theteamwouldgatherdecisionmakersforaretreat,atwhichit

wouldpresentthedatagatheredinstep3andthestrategicissuesithasframed.

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Decisionswouldbemadeaboutwhichkeystrategicissuestheorganization

mustaddress.Thenthediscussionwouldturntostep4.

Whyaretreat?Becauseinmostgovernments,noonehasenoughpower

toachieveanythingbysimplyorderingthatitbedone.Powerissodiffusethat

leadersmustspendagreatdealoftimeconvincingotherstobuyintotheir

vision,goals,andstrategies.Onequickwaytodosoisataretreatwhereallthe

keydecisionmakersgather.

5. Identify5­10outcomegoals.

Thesearetheresultsmostimportantfortheorganizationtoproduce.As

examples,foranorganizationwhosemissionistoensurethatallcitizenshave

adequatehousing,outcomegoalsmightinclude:

• reducedhomelessness,

• increasedhomeownership,

• increaseddevelopmentinpoorcommunities,

• greatercustomersatisfaction,and/or

• increasedorganizationalcost‐effectiveness.

Attheretreatdescribedabove,leaderswouldchoosethesegoals,

throughafacilitatedprocess.Theywouldthenchoosethreeindicatorswith

whichtomeasureprogressoneachgoal.Thiswouldgivetheorganizationan

overallscorecard,tomeasureitssuccess.

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Eachstrategicissuetheorganizationmustaddressshouldfallwithinone

oftheoutcomegoals.Iftheydonot,thegroupshouldconsideraddingan

outcomegoalthatwouldcovertheissueinquestion.

6. Developstrategiestoachievetheoutcomegoalsandaddressthe

strategicissues.

Everyorganizationhasasetofstrategies,someofwhichareexplicit,

othersofwhichmaybeimplicit.Butthemosteffectiveapproachisnottostart

byreviewingexistingstrategies.Instead,theprocessshouldbeginwithan

analysisofwhatfactorshavethemostimpactonthedesiredoutcomes(and,

therefore,whatfactorswouldclosethegapbetweentheorganization’svision

andwhereitistoday).

Todothiswork,leadersshouldchartera“resultsteam”foreach

outcomegoal:asmallgroup(5‐8)ofstrategicthinkers,madeupofinternaland

externalconsultants,policy,research,andbudgetstaff,andprogramstaff.

Theseteamswouldbeginbyusingfairlyintensiveresearchtodefinethefactors

thatmostimpacttheirdesiredoutcome.Thentheywoulddevelopacause‐and‐

effectmapofthosefactors,tounderstandtheirinterrelationships.Asan

illustration,thisisacause‐and‐effectmapofthestrategiesthatimpacthealthin

onestate:iii

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Thesecause‐and‐effectmapshelpidentifywhatfactorshavethemost

powertoachievethedesiredoutcome.Withthatinformation,resultsteamscan

thendiscusswhatstrategiesmightbemosteffective—notonlytoachievethe

outcomegoals,buttoresolverelatedstrategicissues.Somefactorsmaybeout

oftheorganization’sreach;hencetheywouldnotleadtostrategies.Butinmost

cases,theorganizationwilldiscoverthatitcanimpactmostoftheoutcome

goals,whetherdirectlyorindirectly.Withthisfreshlookatthequestion,the

teamwouldcomeupwithasetofstrategiesitbelievestheorganizationshould

pursue.

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Theteamwouldthencomparethemtothestrategiesalreadyinplace.

(Someexistingstrategieswouldbeencompassedbyoneprogram;othersmight

involvemultipleprograms.)Atthispoint,theycouldmapthepossible

strategiesalongwithexistingstrategies,toseehowtheyinteractwithone

another.(Strategiesmeanttoresolvethestrategicissuesshouldfallwithinone

oftheoutcomegoals;ifoneortwodonot,theycanbemappedhere,alongwith

therest.)Thisexercise,againbackedbyresearch,willhelptheteam

understandwhichstrategieshavethemostpower,whichmaynothaveenough

powertobeworthfunding,andwheretherearestillgapsthatmayrequire

strategiestheyhavenotconceivedofyet.(Formoreonstrategymapping,see

VisibleThinking,byBryson,Ackermann,Eden,andFinn.iv)

Theresultsteamswouldpresenttheirrecommendationsabout

strategiestotheleadershipatanotherretreat.TheywouldrefreshtheSWOC

analysispresentedearlier,thenaddwhattheirresearchandanalysishas

suggestedaboutthosestrategiestheorganizationshouldcontinuefunding,

thoseitshouldeliminate,andnewstrategiesitshouldadopt.Oncethese

decisionshavebeenmade,theleadershipshouldadoptthreeintermediate

outcomeindicatorswithwhichtomeasureprogressoneachstrategy.

7. Developabudgettofundthedesiredstrategies.

Theleadershipwouldthenmoveintothebudgetdevelopmentprocess,

usingBudgetingforOutcomes,amethodologypioneeredbythePublic

StrategiesGroupintheU.S.(www.psg.us).Theywouldstartbysettingan

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overallspendingtargetforthenextyear.Theywoulddividethistotalamong

theoutcomegoals,andwithineachgoaltheymightchoosetoassignadollar

figureforeachstrategy.(Thesedollarfiguresforoutcomegoalsandstrategies

canbemodifiedlaterintheprocessiftheyturnouttobeinadequate.)

Theresultsteamswouldthendevelopdocumentscalled“Requestsfor

Results”—oneforeachoutcomegoal.Thesewouldtaketheplaceofthe

traditionalbudgetinstructions.Theywoulddefinethedesiredoutcome,

presentthethreeindicatorsthatwouldbeusedtomeasureit,thendefinethe

strategiestobepursued,theindicatorsusedtomeasurethem,andhowmuch

moneywouldbeavailableforeachoutcomegoaland,perhaps,eachstrategy.In

additiontothestrategiestheyhadchosenearlier,theycouldalsodefinemore

genericcriteria,suchas,“Wewouldliketoseecollaborativeinitiativesbetween

differentprogramsandoffices,”or,“Wewouldliketoseeoffersthatleverage

privatesectoractivityandresourcesaswellaspublic.”Thiswouldencourage

programmanagerstogetoutoftheirsilosandlookforpartnerswhocouldhelp

maketheirprogramsmoreeffective.

TheRequestsforResultswouldgoouttoallmanagers,contractors,and

otherrecipientsoffunds,asaninvitationtosubmitinnovativerequestsfor

funding.(Insubsequentyears,theorganizationcouldconsiderlettingother

organizations,suchasnon‐governmentalorganizationsandevenfor‐profit

businesses,submitoffers.Bydoingso,itwouldsharpenthecompetitionand

heightentheinnovation.)Anymanager,contractor,orotherentityfundedby

theorganizationwouldbeabletoprepare“offers”forfunding.Theseoffers

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woulddefinetheprogramtobefunded,theprice,theresultsitwouldproduce,

anddatafromthepast(orfromanother,similarprogram)thatsupportedits

assertionaboutresults.(FormoredetailaboutthisBudgetingforOutcomes

process,seeDavidOsborneandPeterHutchinson,ThePriceofGovernment

(NewYork:BasicBooks,2004.))

Theorganizationwouldbewisetouseinternaland/orexternal

consultantstotrainprogrammanagersabouttheofferprocessandtohelp

themlookforinnovationsthatcouldmaketheirprogramsmorecost‐effective.

Whentheofferscamein,theresultsteamswouldanalyzethemandgroupthem

intothreecategories:mostcost‐effective,leastcost‐effective,andthoseinthe

middle.Withineachgroup,theywouldrankoffersfrommostcost‐effectiveto

leastcost‐effective,untiltheyhadallprogramsranked.Theywould“buy”from

thetopofthelistuntilthemoneyranout,thendrawaline.

Atthispointtheywouldsendtheirrankingsouttoallthosewhohad

madeoffers,alongwithanyspecificfeedbacktheyhad.Forinstance,theymight

askformoreinformationordataaboutresults.Theymightsuggestthatsome

managersinvestigateparticularinnovations.Theymightaskstillothersto

explorecollaborationswithotherofferers.Finally,theymightasksometo

“scale”theiroffers—indicatingwhatresultstheycouldproducewithmore

moneyorlessmoney.

Seeingtheiroffersrankedbelowthelineorneartheline—andthusat

risk,incaseoffersbelowthelinewereimprovedenoughtoleapfrogtheirs—

thosemakingofferswouldgetseriousaboutinnovation.Toensurethattheir

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programssurvived,theywouldbemotivatedtosearchforbestpracticesthat

couldmakethemmorecost‐effective.

Whenthefinalofferscamein,theresultsteamswouldengagein

dialoguewithsomeofferers,lookingformoreinformation,specific

improvementsinoffers,andsoon.Themoreinteraction,themorecreativeand

effectivetheofferswouldbecome.Oncetheofferswerefinal,theteamswould

againrankthem,buyfromthetop,anddrawaline.Theywouldforwardtheir

rankingstotheleadership,whichwouldusetherecommendationstoput

togethertheirbudget,makinganychangestheythoughtnecessary.

8. Developeffectiveimplementationprocessestooperationalizethe

strategies.

Oncethestrategiesandprogramshavebeendefinedandbudgeted,the

challengewouldbetoimplementthemsuccessfully.Inalargeorganization,

operationalagenciesmightneedhelpwiththis.Successfulimplementation

wouldnodoubtrequireinternalchangeswithinsomeprograms,agencies,and

departments.

Consultants,whetherinternalorexternal,couldhelpprogramoffices

understandtheirnewenvironmentandidentifytheoutcomesandstrategies

theyarenowresponsiblefordelivering.Theycouldgatherinformationabout

strengths,weaknesses,opportunitiesandchallengesinimplementation,

identifykeyissues,andfacilitateretreatstohelpprogramleadersmake

decisionsabouthowtohandlethosekeyissues.Thiswould,inasense,bea

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newroundofstrategicplanningwithin(and,insomecases,across)the

organizationalsilos,tooperationalizethenewoutcomegoalsandstrategies.

Thisstepwouldnotbenecessaryinallorganizations.

9. Developaperformancemanagementsystemtolearnfromexperience

andcontinuouslyimproveresults.

Thechallengewouldnowbetomonitorandlearnfromresults,sothe

organizationcouldcontinuouslyimproveitsstrategies,programs,andwork

processes.Todothis,itsleadersshouldcreateatleastfivemajorpiecesofa

performancemanagementsystem.

First,theleadershoulddevelop2‐3yearperformanceagreementswith

hisorherkeyexecutives,spellingouttheresultsdesired,therewardstobe

earned,andthesupporttobeprovidedandmanagementflexibilitiestobe

grantedtomaketheresultspossible.Theseagreementsshouldbenegotiated

betweentheleaderandtheexecutive(typicallyadepartmentheadoragency

director).Theywouldensureclarityaboutthemostimportantresultstobe

achieved,incentivesfortheexecutivetoachievethem,andthemanagement

powersheorshewouldneedtomakethenecessarychanges.Typical

flexibilitiesinsuchagreementsincludefreedomfromlimitsonthenumberof

employees,authoritytowaivecertainpersonnelandprocurementrules,

freedomtomovemoneybetweencertainaccountswithoutaskingpermission,

andauthoritytokeepsomepercentageofmoneynotspentinafiscalyearand

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useitinthenextyear.(Formoreaboutsuch“flexibleperformanceagreements,

seeTheReinventor’sFieldbook,byDavidOsborneandPeterPlastrik.v)

Second,theleadershouldmeeteverymonthoreveryquarterwitheach

oftheseexecutives,toassessprogressinachievingperformancegoals,discuss

whichstrategiesareworking,whicharenot,andwhy,andmakechanges

necessarytoensuresuccess.(Forshorthand,letuscallthisa“Stat”process,

sinceithasbeencalled“CompStat”inAmericanpolicedepartments,whereit

originated,“CitiStat”incities,and“StateStat”instates.)Otherexecutivesdoing

relatedworkshouldbepresentatthesesessions,sothatproblemscouldbe

solved.Forinstance,whenanagencyheadsays,“Wecan’tachievethoseresults

becausetheprocurementrulesmakeitimpossibletohiretheright

contractors,”theprocurementchiefshouldbeintheroomandreadytowork

outasolution.(FormoreaboutStatsystems,seeThePriceofGovernment.vi)

Third,theorganizationshouldnegotiateperformancecontractswithall

itscontractors,spellingouttheresultsexpected,howtheywillbemeasured,

andtherewardsifgoalsareexceededandsanctionsifresultsarepoor—

includinglossofthecontractifperformancefallsbelowasetlevel.Quarterly

reviewscouldbedonewithcontractorsaswell.

Fourth,theorganizationshoulddevelopbalancedscorecardsof

performancegoalsforeachprogram,office,workteamandotherfundedentity

(suchascontractorsandlowerlevelgovernments),throughoutthe

organization.Balancedscorecardsincludeindicatorsthatreflectatleastfour

factors:successatachievingmissiongoals,customersatisfaction,employee

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engagement,andsoundfinancialmanagement.Asitdoesthis,theorganization

shouldrollouttheStatprocessateverylevel,notjustattheverytop.

Resultsteammembersandinternalconsultantsshouldbeheavily

involvedintheseStatmeetings.Astheylearnedmoreandmoreaboutwhat

works,whatdoesn’t,andwhy,theywouldbecomemoreintelligentbuyersin

subsequentroundsofBudgetingforOutcomes.Meanwhile,thebudgetoffice

shouldbereorganizedaroundtheoutcomegoals,sothatseveralbudgetoffice

staffbecomepermanentmembersofeachresultsteam.Thiswouldhelpthe

budgetofficebecomebetterpurchasersofresultseveryyear.

Finally,whenthesesystemsareinplaceandpeoplethroughoutthe

organizationarerelativelycomfortablethattheyhaveusable,valuable

performancegoals,indicators,anddata,leadersshoulddevelopasystemof

incentivestorewardexecutives,divisions,offices,andworkteamsforachieving

theirgoals.Theentireperformanceevaluationprocessshouldberedesigned,

tofocusonachievementofobjectiveperformancegoalslaidoutinbalanced

scorecards,notonsubjectiveratingsofperformancebysupervisors.(Formore

onincentivesandobjectiveperformanceevaluation,seeTheReinventor’s

Fieldbook,chapters6and7.vii)

Itwillbeobviousbynowthateffectivestrategicandperformance

managementrequiresagreatdealofwork.Butitisexactlytheworknecessary

tomakedramaticimprovementsincost‐effectiveness.Theinvestments

demanded—oftime,people,andmoney—yieldenormousreturns.

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Organizationsusingstrategicandperformancemanagementsystemslikethese

haveachieved5‐8percentannualgainsinproductivity,yearafteryear.

Becausestrategicandperformancemanagementaresolaborintensive,

however,itisimportantnottorepeatthebasicprocessestoooften.Budgeting

forOutcomesonlyneedstobedoneeverytwoyears:abiennialbudgetcycle

worksbest,andevenifanorganizationhastouseanannualcycle,itmightbe

wisetoonlydothefullBFOprocesseverytwoyears.Similarly,thefullstrategic

planningprocesswouldnotbenecessaryineveryroundofbudgeting;itshould

perhapsbeusedonceeveryfouryears.

Tosumup,onecouldlookatthisstrategicmanagementsystemasa

three‐leggedstool.Astrategicplanhelpsanorganizationunderstandwhereit

needstogoandthestrategiesnecessarytogetthere;astrategicbudgeting

systemlinesthemoneyupbehindthoseoutcomegoalsandstrategies;anda

performancemanagementsystemmeasuresprogress,helpseveryonelearn

whatadjustmentstheyneedtomakealongtheway,andensuresthattheymake

thoseadjustments.Allofthesearevaluableactivities.Butwithoutallthree

legs,noonewouldwanttositonthestool.

iJamesM.KouzesandBarryZ.Posner,TheLeadershipChallenge(SanFranciscoJossey‐Bass,1995),p.111.iiDavidOsborne,“EffectiveVisioning,”September2009,availableatwww.psg.us.iiiDavidOsborneandPeterHutchinson,ThePriceofGovernment(NewYork:BasicBooks,2004),p.78.ivJohnM.Bryson,FranAckerman,ColinEden,andCharlesB.Finn,VisibleThinking(Chichester,England:JohnWileyandSons,2004.vDavidOsborneandPeterPlastrik,TheReinventor’sFieldbook(SanFrancisco:Jossey‐Bass,2000),pp.124‐148.viOsborneandHutchinson,op.cit.,pp.163‐174.viiOsborneandPlastrik,op.cit.