The Balanced Scorecard: Translating Strategy Into Action (38 page)
Read The Balanced Scorecard: Translating Strategy Into Action Online
Authors: Robert S. Kaplan,David P. Norton
Tags: #Non-Fiction, #Business
We first discussed National Insurance in
Chapter 7
. Recall that the new management team, brought in by the corporate parent to turn around a dismal situation, concluded that National had to focus on niches, where existing staff already had special expertise and comparative advantages. Its initial attempts to communicate the change in strategy to the organization, however, had little impact. Most people could not understand the new vision—they thought they already were specialists. The management team, at this point, launched the development of National’s Balanced Scorecard, which led logically and inexorably to a sequence of actions (see Figure 12-3) that ultimately succeeded in transforming National into a profitable insurer.
The first few steps in the implementation process
- clarified the company vision and strategy,
- communicated the corporate strategy,
- launched cross-business strategic initiatives, and
- led to each SBU developing its own strategy, consistent with that of the company.
These steps all occurred during the first year.
The corporate review process (see step 5 in Figure 12-3) created some unanticipated benefits. As the individual SBUs developed specific strategies, they identified several cross-business issues that were not included in the original corporate scorecard. For example, many of the SBUs realized that they must understand their customers better and needed to solicit feedback on customer satisfaction. Since many SBUs would be selling to
the same customers, they identified the opportunity for developing a new business process, an integrated selling approach to targeted market segments. This experience was an excellent example of strategy emerging from within the organization, as discussed by Mintzberg and Simons (see
Chapter 11
). The bottom-up strategy formulation at the SBU level, within the context established at the company level, led to an entirely new approach for accomplishing the SBUs’ strategy. Several such strategic initiatives emerged from the SBUs, and were then incorporated into an updated corporate scorecard.
Immediately upon approval of their scorecards, the SBUs began a monthly review process (step 8 in Figure 12-3). The monthly reviews were supplemented with quarterly reviews that focused more heavily on strategic issues. Initially, information was available on only two-thirds of the measures. Management reviews focused more on the measures where data were available. The lack of data for a scorecard measure, however, did not prevent an issue from being discussed. The group felt that discussion, even without data, kept members focused on strategic issues, and was certainly superior to the alternative of no discussion on a particular strategic process, objective, or measure. The measurement gap also motivated management to develop a plan to acquire the missing data. In general, the plan required that a more basic management system be developed, since the lack of data indicated the general lack of an adequate management process.
1
For example, the lack of a measure on underwriting quality revealed that there were no processes to specify, to measure, and to audit underwriting quality. Thus, the building of the complete Balanced Scorecard required National’s managers to develop a more complete management system. Most of this development was completed over a six-month period.
After two years, the Balanced Scorecard had become integrated into the regular management cycle at National. The organization had achieved its short-term objective—survival. The new management measures and processes had facilitated a shift of the entire organizational culture, from an unfocused generalist strategy to a targeted specialist one.
Figure 12-3
Using the Management System to Orchestrate Change
Source
: Robert S. Kaplan and David P. Norton, “Using the Balanced Scorecard as a Strategic Management System,”
Harvard Business Review
(January–February 1996): 78–79. Reprinted with permission.
Many organizations have had experiences similar to that of National Insurance: the introduction of a Balanced Scorecard creates pressure to broaden its role in the management system. Once a scorecard has been designed and introduced, concerns soon arise if the scorecard is not tied into other management programs, such as budgeting, alignment of strategic initiatives, and setting of personal targets. Without such connections, the effort devoted to developing a Balanced Scorecard may not deliver tangible benefits.
Most companies have a management calendar that identifies the different management processes being used and the schedule for the operation of each process. Typically, the calendar is organized around the budgeting
and operational review process. Strategy formulation and review is usually disconnected from the scheduled periodic management processes. The Balanced Scorecard provides a vehicle to introduce strategic thinking into ongoing management processes, but such a linkage must be made explicit.
Figure 12-4 is the management calendar at Kenyon Stores. The CEO established this calendar after he had redesigned the management process to incorporate the Balanced Scorecard and the strategic perspectives that it represented. The management calendar incorporates four essential features of a strategic management system:
- Strategy formulation and strategic issue update
- Link to personal objectives and rewards
- Link to planning, resource allocation, and annual budgets
- Feedback and strategic learning
The strategy formulation and strategic issue update is a means for top-down guidance for the heads of the operating divisions. During this process, senior management can either initiate the development of a Balanced Scorecard linked to a new long-range plan, or it can update the strategy annually. At Kenyon Stores, the CEO had outlined 10 strategic issues at the end of the first quarter, raised in part by the strategic-scorecard reviews that had been performed at the end of the previous year and, in part, by the functional leaders of the organization. The issues were corporate in scope and reflected shared corporate priorities and themes. The CEO asked the SBU presidents to take the list and develop a plan on how the updated corporate themes and priorities should be implemented in their organizations. The presidents presented their ideas in a four-hour “Strategic Dialogue” meeting with the CEO. The meeting itself was intimate and informal; the goal of the meeting, however, was tangible and specific. The CEO and each SBU president were to reach agreement on the strategic approaches to each of the 10 issues; for example, How would the SBU maintain fashion leadership? How would the SBU develop its key people?
After the strategic dialogue meeting, the SBU presidents worked with their management teams to develop or update their long-range plans and their SBU Balanced Scorecards. Generally, this development process occurred over a three-month period, during the second quarter of the fiscal year. Linking corporate and SBU strategies to functional strategies is an important extension of the process. As discussed in both
Chapters 8
and
10
, corporations such as Kenyon Stores, often establish centralized, corporate-level functional departments to support their (otherwise) decentralized strategic business units. Corporate and SBU objectives are linked simultaneously to objectives for corporate-level functional departments during the long-range planning/SBU Balanced Scorecard development process.
Figure 12-4
The Management Calendar at Kenyon Stores
