Read The Balanced Scorecard: Translating Strategy Into Action Online
Authors: Robert S. Kaplan,David P. Norton
Tags: #Non-Fiction, #Business
The Balanced Scorecard: Translating Strategy Into Action (27 page)
1
. See D. J. Collis and C. A. Montgomery, “Competing on Resources: Strategy in the 1990s,”
Harvard Business Review
(July–August 1995): 118–128; M. Goold, A. Campbell, and M. Alexander,
Corporate-Level Strategy: Creating Value in the Multibusiness Company
(New York: John Wiley & Sons, 1994); and G. Hamel and C. K. Prahalad,
Competing for the Future: Breakthrough Strategies for Seizing Control of Your Industry and Creating the Markets of Tomorrow
(Boston: Harvard Business School Press, 1994).
2
. See C. K. Prahalad and G. Hamel, “The Core Competence of the Corporation,”
Harvard Business Review
(May–June 1990): 79–91.
3
. Goold, Campbell, and Alexander,
Corporate-Level Strategy.
4
. Experience reported in “Implementing the Balanced Scorecard at FMC Corporation: An Interview with Larry D. Brady,”
Harvard Business Review
(September–October 1993): 146.
5
. D. Osborne and T. Gaebler,
Reinventing Government: How the Entrepreneurial Spirit Is Transforming the Public Sector
(Reading, Mass.: Addison-Wesley, 1992).
6
.
Creating a Government That Works Better and Costs Less: Report of the National Performance Review
(Washington, D.C.: U.S. Government Printing Office, 1993).
7
. Ibid., 74–75.
8
. Performance Measurement Action Team, “Performance Measurement Report,” unpublished manuscript, Procurement Executive Association: Washington, D.C., December 1994.
9
.
Creating a Government
, 76.
10
. We are indebted to Laura Downing and Marissa Hendrickson of Renaissance Solutions, Inc. for the information on the Massachusetts Special Olympics study.
P A R T T W OO
NCE BUSINESSES HAVE BUILT
their initial Balanced Scorecard, they should soon embed the scorecard in their ongoing management systems. In
Part Two
of the book, we illustrate how several companies are using the Balanced Scorecard as the cornerstone of a new strategic management system. Company managers have discovered that the scorecard enables them to bridge a major gap that formerly existed in their organizations: a fundamental disconnect between the
development and formulation
of strategy and its
implementation.
The disconnect between strategy formulation and strategy implementation is caused by barriers erected by traditional management systems—the systems organizations use to:
- establish and communicate strategy and directions;
- allocate resources;
- define departmental, team, and individual goals and directions; and
- provide feedback.
In particular, we have identified four specific barriers (see Figure II-l) to effective strategy implementation:
Figure 11-1
The Four Barriers to Strategic Implementation
The first barrier to strategic implementation occurs when the organization cannot translate its vision and strategy into terms that can be understood and acted upon. Where fundamental disagreement exists about how to translate the lofty vision and mission statements into actions, the consequence is fragmentation and suboptimization of efforts. The CEO and the senior executive team have failed to gain consensus among themselves about what their vision and strategy really mean. Lacking consensus and clarity, different groups pursue different agendas—quality, continuous improvement, reengineering, empowerment—according to their own interpretations of vision and strategy. Their efforts are neither integrated nor cumulative since they are not linked coherently to an overall strategy. While
our survey revealed that 59% of senior management teams feel they have a clear understanding of how to implement the vision, only 7% of middle managers and front-line employees do. This finding corroborates Senge’s observation that even a leader with a clear vision lacks mechanisms for sharing this vision with all organizational employees in terms that make the vision actionable.
We have found that the process of building a Balanced Scorecard (as described in
Chapters 3
–
8
) clarifies the strategic objectives and identifies the critical few drivers for strategic success. The process creates consensus and teamwork among all senior executives, regardless of their previous employment history, job experience, or functional expertise. The scorecard translates a vision into key strategic themes that can then be communicated and acted upon throughout the organization.
The second barrier arises when the long-term requirements of the business unit’s strategy are not translated into goals for departments, teams, and individuals. Instead, departmental performance remains focused on meeting the financial budgets established as part of the traditional management control process. And teams and individuals within departments have their goals linked to achieving departmental short-term and tactical goals, to the exclusion of building capabilities that will enable longer-term strategic goals to be achieved. This barrier can perhaps be attributed to the failure of human resource managers to facilitate the alignment of individual and team goals to overall organizational objectives.
In our survey, respondents indicated that 74% of their senior executives had their compensation linked to the organization’s annual goals. Fewer than one-third, however, reported that incentive compensation was linked in any way to achieving long-term strategic objectives. At lower levels, the disconnect was even more dramatic. Fewer than 10% of middle managers and front-line employees had incentive compensation linked to long-term strategy. Given this disconnect, it is not surprising that organizations have difficulty focusing their employees on implementing strategies, no matter how well-conceived and -formulated the strategies are. The incentive system, linked to short-term financial measures, simply reinforces the old ways of doing business.
In
Chapter 9
, we describe how organizations are using the Balanced Scorecard to communicate their new strategies to all employees, and then aligning departmental, team, and individual goals to successful implementation of the strategy. While senior managers disagree about the benefits of rapidly and explicitly linking compensation to scorecard measures, they do agree that the communication and goal-setting process has dramatically improved the alignment of all organizational participants to the strategy.