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Michael Beitler
Author of "Strategic Organizational Change"
1. Translate the strategy to operational terms
2. Align the organization to the strategy
3. Make strategy everyone's job
4. Make strategy a continual process
5. Mobilize change through executive leadership
The first four principles focus on the the Balanced Scorecard tool, framework, and supporting resources; the importance of the fifth principle is self-evident. "With a Balanced Scorecard that tells the story of the strategy, we now have a reliable foundation for the design of a management system to create Strategy-Focused Organizations."
After two introductory chapters, the material is carefully organized and developed within five Parts, each of which examines in detail one of the aforementioned "common principles": Translating the Strategy to Operational Terms, Aligning the Organization to Create Synergies, Making Strategy Everyone's Job, Making Strategy a Continual Process, and finally, Mobilizing Change Through Executive Leadership. Kaplan and Norton then provide a "Frequently Asked Questions" section which some readers may wish to consult first.
There are many pitfalls to be avoided when designing, launching, and implementing the program which Kaplan and Norton present. These pitfalls include lack of senior management commitment, too few individuals involved [or including inappropriate individuals at the outset], keeping the scoreboard at the top, too long a development process (when, in fact, the Balanced Scorecard is a one-time measurement process), treating the Balanced Scorecard as an [isolated] systems project, hiring consultants lacking sufficient experience with a Balanced Scorecard, and introducing the Balanced Scorecard only for compensation. When organizations experience one or more of these pitfalls, their key executives can soon become impatient, confused, frustrated, and ultimately, opposed to Balanced Scorecard initiatives. It is imperative to understand both what the Balanced Scorecard must be (e.g. cohesive and comprehensive) and what it must not be (e.g. fragmented and episodic). Kaplan and Norton correctly note that the journey they propose "is not easy or short. It requires commitment and perseverance. It requires teamwork and integration across traditional organizational boundaries and roles. The message must be reinforced often and in many ways." Those who are determined to achieve organization-wide breakthrough performance are fortunate to have Kaplan and Norton as companions every step of the way during what is indeed a perilous "journey."
After spending more than a year at it, at all levels of government from top to bottom, the Balanced Scorecard was dropped like a hot potato. It is virtually incomprehensible to staff, encourages the worst kind of navel gazing, and moves government away from its core mission of protecting and promoting public health and safety to hundreds of possible sub-measures of dubious value. Thousands of staff hours, at the public's expense, were expended trying to make sense of an approach that even the paid consultants couldn't explain in terms the average legislator could understand.
This is REALLY BAD STUFF.
During the same period that Zachman was developing his IT Architecture Framework, various business and management thinkers were looking for ways to adequately capture the importance of the "intangible" or non-financial assets of the organization. Notable in this respect were the attempts of Yugi Ijiri (Momentum Accounting and Triple-Entry Booking, American Accounting Association, 1989), and Robert Kaplan and David Norton (The Balanced Scorecard, Harvard Business School Publishing 1996).
Especially the efforts of Kaplan and Norton were implemented by various large-scale organizations - often in a different way than anticipated by the authors themselves. In this book, Kaplan and Norton describe their earlier effort as follows: "We first developed the Balanced Scorecard in the early 1990s to solve a measurement problem. ...... But we (subsequently) learned that adopting companies used the Balanced Scorecard to solve a much more important problem than how to measure performance in the information era. The problem, of which we were frankly unaware when first proposing the Balanced Scorecard, was how to implement new strategies."
Messieurs Kaplan and Norton goes on to describe the cause and effect linkages between a company's Mission, the way it interprets its reality and its beliefs (Philosophy and Core Values), how it thinks the future is going to look like (that Vision thing...), its Strategies (or its hypotheses and plans on how to create value), and the actual consequences. As a result, the outcomes should generally lead to a more dynamic and innovative organization, where customers are constantly being provided a delightful experience and real value. In the final instance all this effort should lead to rapid growth and increased productivity, which together results in better financial performance, and happy shareholders.
Seen this way, they define the principles of a Strategy-Focused Organization as follows: translating the strategy to operational terms, aligning the organization to the strategy, making strategy everyone's job, making strategy a continual process, and mobilizing change through executive leadership. These are not just words; instead the methods they have developed have been physically applied at some of the largest and best-run organizations on this planet, with dramatic results. In their recent book "The Strategy Focused Organization" the authors supply many examples on how such insights have assisted Mobil, AT&T Canada, Sears, Fannie Mae, Chase Bank, JP Morgan, the US Department of Transportation, UPS, the State of Washington, and several others to dramatically deliver on their financial and "intangible" goals.
To Zachman's credit, his framework does include motivational constructs like goals, strategies, business plans, and rules. Also, he correctly identifies rapid organizational change as the basic driver for the need to build such a framework, exactly the same concept that has lead to the work of Kaplan and Norton.
However, it has become clear now that organizational change is a response to changing realities in the marketplace. Therefore any attempt to deal with this change should be subject to the organizations understanding of its reality, and its response to it - in other words: its strategy.
What Kaplan and Norton have brought to the table is a framework for creating value from strategy, and the realization that this implies a continual focus on strategy. In their understanding it is imperative that this focus, the logic thereof, and the flow (or how it effects every decision in the organization) is clearly spelled out to every employee. And, this process has to start at the top. According to them, "Experience has repeatedly shown that the single most important condition for success is the ownership and active involvement of the executive team. Strategy requires change from virtually every part of the organization. Strategy requires teamwork to coordinate these changes. And strategy implementation requires continual attention and focus on the change initiatives and performance against targeted outcomes. If those at the top are not energetic leaders of the process, change will not take place, strategy will not be implemented, and the opportunity for breakthrough performance will be missed."
Conclusion
Based on the logic, as well as the many success stories stemming from the adoption of the techniques of Kaplan and Norton, it makes definite sense to embrace the idea of focusing on strategy from a corporate perspective. If we do, then we also accept the fact that corporations should use Corporate Culture, Organizational Structure, and Technology to express their strategies.
As such, technology is very often the first line of defense in an organization's response to a change in reality. Therefore, it is becoming critical to reflect this state of affairs in such a way that everyone is aware of its importance. That explains why this also applies to the Zachman framework for Architecture.
At the same time this calls for a shift in approach. By subscribing to this view, it now becomes essential, not only to describe current architecture, or even future developments, but also to link the flow of architecture over time to its real cause - the dynamic strategies of the organization, which in turn is a reflection of changes in the business reality.
In short - An altogether delightful piece of progress. All management thinkers should be (at the very least) aware of this. Buy the Book!
After reading it i realize that this can ultimately be apiled to small/med size companies. Companies with revenue of less than 500K USD/year revenue can reap similar benefit compare to the fortune 500 companies by implementing it.
The samples shown in the book make it easier for the reader to copy and adapt for their own organisation. Most samples are derived from the big-companies (typical harvar business book ;-))), but we can adapt it to our (small company) needs.
Focus on chapter 3, about STRATEGY MAP. this is most important. And the GENERIC STRATEGY MAP can be appleid to most organisation with minimum of ajustments. COPY and ADAPT. we can not afford to hire the expensive consultants, so we have to be our own consultant. And this book is a good guide.
Most small companies do not even have VISION, MISSION etc statements. But the balance scorecard helps us focus on strategy, objectives, measures, target and INITIATIVES that are measurable, in a more descreptive ways. This is in a sense a HOW-TO book about strategy, and about measurements.
I've decided to use the sytem for our company sam-design.com which now has 58 people, and sell the intangibles (designs). We won Andersen Consulting (Accenture now) award of ENTERPRISE-50 (awards for most promising small and medium size companies in Indonesia) last November. We think that the strategy describe in the book will boost our company's growth despite the slowdown of the internet.
I started to read the book with much skeptism but ended up recommending it to many friends, write a review about it for local magazine and promoting the idea of strategy based on balance scorecard. ( I did read the original balance scorecard book which was published in 96, interested in the idea for a while but did not implement any of it).
So for the small companies out there, go and get the book, this is not only for the big-boys....
Building on their Balanced Scorecard approach, Kaplan and Norton have developed an impressive framework in The Strategy-Focused Organization for the implementation of strategy. They have found that 90% of strategic initiatives fail due not to formulation but to implementation difficulties. Successful implementation of strategy requires all parts of an organizations to be aligned and linked to the strategy, while strategy itself must become a continual process in which everyone is involved. The Balanced Scorecard, originally seen by the authors as a measurement tool, is now presented as a means for implementing strategy by creating alignment and focus.
Financial measures report on lagging financial indicators. The Balanced Scorecard aims to report on the drivers of future value creation. The book shows in detail how this is done from four perspectives: Financial, customer, internal business perspective, and learning and growth (these are outlined on p.77). These four perspectives produce a highly detailed framework when combined with the five principles of a strategy-focused organization: 1: Translate the strategy to operational terms. 2: Align the organization to the strategy. 3: Make strategy everyone's everyday job. 4: Make strategy a continual process. 5: Mobilize change through executive leadership.
Absorbing every detail of this book will require many hours. The sheer detail of this complex system requires considerable attention, perhaps more than some readers can muster, but clearly distinguishes this work from many books full of business fluff. The style tends to be turgid and pedantic while being admirably complete. Readers can grasp the essence of the book's central points by reading only Chapter 1 (Creating the Strategy-Focused Organization), Chapter 3 (Building Strategy Maps), and Chapter 8 (Creating Strategic Awareness). Skip quickly through the chapters in Part Two: Aligning the Organization to Create Synergies. This section is the least engaging of the five. The balanced scorecard approach to strategy will appeal to those with a systematizing frame of mind. The book is filled with complex diagrams of corporate processes consisting of interrelated boxes and forces.
This approach is extremely detailed and complex. It requires a major commitment and effort. Though the authors claim it can be implemented by smaller organizations, this will be more challenging than for large companies who can commit a team full time to working out the details.
Much of the value of the approach may lie not so much in following through on completely working out the balanced scorecard but on absorbing the lessons regarding organizational integration across silos and the importance of clarity about mission, strategy, and goals. The balanced scorecard is one way to achieve and implement this clarity but not the only way. Another would be continual reiteration of these (as in Confessions of An Extraordinary Executive). Some companies may benefit from strict use of this system, including finding units of measurement for its implementation. Others will gain much from applying the insights without such a formal and complete implementation.
This book is an
interim report on the application of the authors' concept, the
Balanced Scorecard (introduced in 1992 and described in the book of
the same name, published in 1996). The purpose of the book is to
provide "a roadmap for those who wish to create their own
Strategy-Focused Organization . . . [by employing the Balanced
Scorecard]."
If you don't know what the Balanced Scorecard is,
let me briefly describe it for you. A Balanced Scorecard adds several
important measures to the ones normally found in the accounting
system, designed to measure those areas where performance most
directly and powerfully affects strategic position. Such areas
include innovation, organizational learning, effectiveness in key
tasks, and performance with key audiences like customers. The
measures are chosen to reflect the systematic effects of how the
organization's overall value and performance are improved, and are
displayed in a Strategy Map that communicates those ideas to one and
all. In doing so, the Balanced Scorecard is the applied solution to
many of the issues raised about how to establish a learning
organization in Peter Senge's The Fifth Discipline.
Most new
business concepts do not last long enough to warrant a study on their
effectiveness. The ones that do, like reengineering a few years ago,
usually display more problems than successes. The Balanced Scorecard
concept is the exception. The results have been very positive for
almost all those who have employed it.
The key seems to lie in
having everyone in the organization have a more complete understanding
of what the organization is trying to accomplish. As such, the
authors have actually uncovered something much more significant than a
strategy communications process. Harvard Business School Professor
and accounting guru (Activity-Based Costing) Bob Kaplan and consultant
David Norton have uncovered a best practice in how to communicate any
important message in an organization. Although the book does not
address that latter point, discerning readers will quickly spot it.
Presumably the authors will too at some point, and a future book will
begin to address this important application.
The focus of this
book is on how Balanced Scorecard "adopting companies used [it]
. . . to implement new strategies." The finding is that with
"their new focus, alignment, and learning, the organizations
enjoyed nonlinear performance breakthroughs." This is quite
remarkable because organizations have reported in the past that
implementing new strategies is one of the most difficult tasks they
ever take on. Studies cited by the authors point to one problem being
that most people in the organization are never clear on what the new
strategy is. So if careful coordination and purposeful change are
required, the speeding relay team may instead drop the baton along the
way.
The Balanced Scorecard provides for a fundamental strategic
control mechanism in the same way that the budget provides an
operational control. The Balanced Scorecard is at the center of the
organization's business planning, getting feedback to improve learning
about how to proceed and then translating the organization's vision
for each employee. This feedback is critical because most initial
concepts for strategy are flawed in fundamental ways. As the authors
point out, strategies should be treated as hypotheses, rather than as
commandments written permanently in stone. Only by uncovering those
flaws and correcting them does a new strategy have a good chance of
succeeding.
The book features a lot of case histories that explain
what the most successful organizations have done to apply the Balanced
Scorecard. These are particularly valuable for making the key
elements of the Balanced Scorecard clearer. For example, the book
contains many pages of Strategy Maps for different organizations.
These maps connect financial, customer, internal process, and learning
objectives in an explicit description of how improvement in each area
is connected to each other one, and to the organization's overall
objectives. Without these detailed examples, it would be very hard to
grasp the heart of the communications process involved here.
These
financial and nonfinancial metrics can then be used to create personal
objectives for each person in the organization for contributing to the
ultimate success. Management by objectives measures and compensation
systems can be connected to the new strategy in this way.
The
research emphasizes several important themes:
(1) Translate the
strategy into operational terms
(2) Align the organization to create
necessary synergies
(3) Make strategic initiatives everyone's
everyday job
(4) Make strategy a continuing process
(5) Mobilize
change through executive leadership
I especially found the surveys
helpful for describing what was different about the effectiveness of
organizations using the Balanced Scorecard. They outperform the other
companies by about 100 percent in having everyone in the organization
understand what the organization's strategy is.
The book also
contains a very helpful section of frequently asked questions about
the Balanced Scorecard.
Let me be sure that you understand what the
limitation of the Balanced Scorecard is. If you conceptualize a
strategy that is not as good as one that your competitor develops, you
will still be vulnerable to losing ground until such time as you
reconceptualize your strategy. The Balanced Scorecard can help you
realize that that task is needed and provide some clues, but this
process will be most helpful to those who excel at conceiving of
pre-emptive strategies that their organizations have advantages in
implementing.
After you have finished reading, sharing and
applying these lessons, I suggest you think about where else people
need better communications processes. Then abstract the elements of
this model to apply in those circumstances as well.
Get where you
want to go more rapidly!
Kaplan and Norton have done their homework. For every suggestion, they provide a wealth of examples, and they are intellectually honest enough to discuss all the evidence, including that which may run against them. As a result, I have great faith in the soundness of their conclusions. Absolutely a must-read for anyone interested in the evolution of business strategy.
It is Fortune, not Wisdom, that rules man's life.
Certainly the game is rigged.
Don't let that stop you; if you don't bet, you can't win.
-- Robert Heinlein, "Time Enough For Love"
