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 (28 page)
The third barrier to implementing strategy is the failure to link action programs and resource allocation to long-term strategic priorities. Currently, many organizations have separate processes for long-term strategic planning and for short-term (annual) budgeting. The consequence is that discretionary funding and capital allocations are often unrelated to strategic priorities. Major initiatives—like reengineering—are undertaken with little sense of priority or strategic impact, and monthly and quarterly reviews focus on explaining deviations between actual and budgeted operations, not on whether progress is being made on strategic objectives. The failure here can be jointly attributed to the vice presidents of strategic planning and finance for not seeing how their efforts need to be integrated, not pursued as separate, functional agendas.
In
Chapter 10
, we present a comprehensive process, built around the Balanced Scorecard, for integrating an organization’s planning, resource allocation, and budgeting processes. In particular, we describe the critical elements of a program that translates strategy into action:
- Establish long-term, quantifiable, and stretch targets for scorecard measures that managers and employees believe are achievable
- Identify the initiatives (investments and action programs) and resources for these initiatives that will enable the long-term targets for the strategic measures on the scorecard to be achieved
- Coordinate the plans and initiatives across related organizational units
- Establish short-term milestones that link the long-term scorecard targets to short-term budgeted measures.
The ultimate payoff of using the Balanced Scorecard as a strategic management system occurs when organizations conduct regular strategic reviews, not just operational reviews. A strategic feedback and learning process based on the Balanced Scorecard has three essential ingredients:
- A shared strategic framework that communicates the strategy and allows participants to see how their individual activities contribute to achieving the overall strategy;
- A feedback process that collects performance data about the strategy and allows the hypotheses about interrelationships among strategic objectives and initiatives to be tested; and
- A team problem-solving process that analyzes and learns from the performance data and adapts the strategy to emerging conditions and issues.
Chapter 11
illustrates how organizations can use the Balanced Scorecard to develop such a strategic feedback and learning process. At present, this process is the most undeveloped of the four major management processes we describe in
Part Two
. To our knowledge, only a few companies have moved far enough along to have implemented a strategic review process, but the ones that have recognize what a powerful new management tool it is. The updating of the strategy cycles the organization back to the first management process—clarifying and gaining consensus on vision and strategy—allowing the strategy to evolve as competitive, market, and technological conditions change.
Figure 11-2
A Different Management System for Strategic Implementation
The final chapter of the book,
Chapter 12
, describes the evolutionary path followed by two organizations, National Insurance and Kenyon Stores, to build, over a 24-month period, a new strategic management system (see Figure II-2). The chapter identifies pitfalls that some organizations have encountered in developing a Balanced Scorecard and deploying it as the central framework for a new management system. It concludes with recommendations for organizing the development and the implementation phases of a scorecard project.
C h a p t e r N i n eAchieving Strategic Alignment: From Top to Bottom
I
MPLEMENTING A STRATEGY
begins by educating and involving the people who must execute it. Some organizations hold their strategy secret, shared only among the senior executive group. The group implements the strategy through central command and control. While this approach was widely used by senior executives for much of the twentieth century, most executives of today’s technology-and customer-driven organizations realize that they cannot determine and communicate all the local actions required to implement a successful strategy. Organizations that wish to have every employee contribute to the implementation of the strategy will share their long-term vision and strategy—embodied in the business unit’s Balanced Scorecard—with their employees, and will actively encourage them to suggest ways by which the vision and strategy can be achieved. Such feedback and advice engages employees in the future of the organization, and encourages them to be part of the formulation and implementation of its strategy.
In an ideal world, every person in the organization, from the board room to the back room, would understand the strategy and how his or her individual actions support the “big picture.” The Balanced Scorecard permits such a top-to-bottom alignment. The development of the scorecard should begin with the executive team (see the
Appendix
). Executive team
building and commitment are an essential part of gaining benefits from the scorecard. But, they are only the first step. To gain maximum benefit, the executive team should share its vision and strategy with the whole organization, and with key outside constituents. By communicating the strategy and by linking it to personal goals, the scorecard creates a shared understanding and commitment among all organizational participants. When everyone understands the business unit’s long-term goals, as well as the strategy for achieving these goals, all organizational efforts and initiatives can become aligned to the needed transformation processes. Individuals can see how their particular actions contribute to achieving business unit objectives (see Figure 9-1).
The alignment of an organization to a shared vision and common direction is an extended and complex process. Some organizations, in our experience, have eventually involved 5,000 or more of their employees in the alignment process. No single program or event can align this many people. Instead, these large organizations use several interrelated mechanisms to translate the strategy and the Balanced Scorecard into local objectives and measures that will influence personal and team priorities. Typically, three distinct mechanisms are used.
1. Communication and Education Programs. A prerequisite for implementing strategy is that all employees, senior corporate executives, and the board of directors understand the strategy and the required behavior to achieve the strategic objectives. A consistent and continuing program to educate the organization on the components of the strategy, as well as reinforcing this education with feedback on actual performance, is the foundation of organizational alignment.
2. Goal-Setting Programs. Once a base level of understanding exists, individuals and teams throughout the business unit must translate the higher-level strategic objectives into personal and team objectives. The traditional management-by-objectives (MBO) programs used by most organizations should be linked to the objectives and measures articulated in the Balanced Scorecard.
Figure 9-1
A Different Management System—Communicating and Linking