MANILA, Philippines — The “compliance phase” thus makes demands for these specific critical steps: (a) Developing a simple and clear communication plan to roll out and transmit the initial governance documents; (b) a thorough cascading process addressed to all key 2L units, which must then come up with their support strategy maps and performance scorecards; and (c) outreach to key external stakeholders, whose representatives can be put together to form a multi-sector governance coalition.

A few additional steps under this phase are also required. These are:

a)A clear link with the budget. It is not enough for all 2L units to come up with their own performance scorecards, which contain their commitments to undertake specific strategic initiatives, with targeted levels of performance. In the process of formulating their supporting performance scorecards, these units also specified the budgets they can realistically expect. Thus, under the compliance phase, the link between budget requests and expectations with targeted levels of performance is made clear, explicit, and direct.

b) A “stratex” budget. Since each 2L unit has its own support strategy map with corresponding performance scorecards, and since the initiatives in the performance scorecards need to be strategic in character, it is essential that a specific “strategy execution” budget is included and made part of the budget plan and allocation. The “stratex” budget is in addition to the usual “opex” and “capex,” which are the standard coverage of the traditional budget exercise, covering both operating expenses and capital expenditures.

c) New revenue streams. Each 2L unit will have to focus a part of its attention on its possible contribution to any new revenue streams or sources of additional revenue in the process of executing strategy at both the 2L and 1L. Indeed, every 2L unit must be deeply conscious of the basic demand of financial discipline: As strategy is executed, not only additional expenses (e.g. stratex) should be budgeted for; included in the budget should be higher revenue expectations arising from achieving the stretch targets in the different performance scorecards. Normally, these revenue expectations should be several notches higher than the additional expenses associated with executing strategy, articulated in the strategy maps at both the 2L and 1L.

During the compliance phase, a key feature of governance sticks out and its importance becomes clear: Strategy must be closely and essentially linked with operations. We cannot put strategy and strategy execution on one side, and keep operations on the other side, and pretend as though the two were unrelated. At this phase of the PGS journey, the link between strategy and operations is highlighted and substantiated in the financial facet: Budget formulation (and oversight on budgetary expenditures) has to be connected with, and has to support, the strategy execution process. While much of the budget for any given year may be devoted to business-as-usual operations (“opex”), still a noticeable and respectable portion of the entire budget has to be set aside for both capital expenditures (“capex”) and special, extra expenditures associated with strategy execution (“stratex”). Moreover, because of the clear link between the budget and pursuit of strategic objectives in the strategy map, monitoring and oversight of expenditures under the usual budget process provides an additional tool for monitoring and oversight of strategy execution itself.