Balanced Scorecard Report the strategy execution source
january – february 2011 : vol 13 no 1
The Office of Strategy Management— The State of the Art, 2011 By David Norton, Director and Founder, and Randall H. Russell, Vice President and Director of Research, Palladium Group, Inc. Many organizations throughout the world have already established an Office of Strategy Management (OSM). Palladium Group has worked with more than 70 organizations that have embraced the concept and adapted it to fit within their unique contexts, and through the Palladium Balanced Scorecard Hall of Fame, has learned of many more OSM implementations. In this article, Norton and Russell (who have worked extensively with OSMs) review the current state of the art of this management innovation, highlighting examples of noteworthy practices at Hall of Fame organizations. They also offer several suggestions about next-generation adaptations. It’s been more than six years since Robert Kaplan and David Norton introduced the concept of the Office of Strategy Management (OSM)—first, in the May–June 2004 BSR article “Strategic Management: An Emerging Profession,” and then more definitively in the October 2005 Harvard Business Review article “The Office of Strategy Management.” Kaplan and Norton recommended the OSM as an approach that organizations could take to help close the gap between strategy development and execution. In theory, an OSM brings together the people responsible for formulating strategy with those responsible for executing it. Bringing these specialists together under the same umbrella should markedly improve the chances of executing the strategy. And, given the role that the Balanced Scorecard plays for many organizations—making the strategy both measurable and manageable—it seems likely that those that have adopted the BSC would be at the forefront of this organizational innovation. In practice, the OSM has become an essential ingredient for any organization that wants to ensure the survivability of its strategy management system. But that’s no guarantee the OSM will endure. Even organizations that have achieved breakthroughs in strategy execution run the risk that a change in executive leadership might result in the OSM’s elimination. It’s a fact of organizational life that the arrival of a new CEO often means that winning concepts are scrapped to allow room for the new leader’s brand of leadership and execution. continued on the following page
also in this issue: What Leaders Are Thinking: Perceptions of Strategy Execution and Leadership in the Asia-Pacific Region . . . . . . . . . . . . . . . . . . . 7 How to Embed Innovation into Your Organizational Culture . . . . . . . . . . . . . . . . . . . . 10 Technology Versus Process: Which Comes First? A Tech Leaders’ Q&A . . . . . . . . . 14
now available! the latest bsr index Download the latest compendium of the entire Balanced Scorecard Report archive— the nearly 350 articles published since BSR’s inception. Organized by more than two dozen topics, this indispensable reference can help you sharpen your strategy management skills, educate your colleagues, customize your own bundle of themed articles, and generally immerse yourself in how-tos, success stories, and key research. It’s free at www.index2010.hbr.org.
get us (in print or electronically) For more information about our publications—BSR (back issues, reprints), Palladium Balanced Scorecard Hall of Fame Reports, BSR Readers, and the latest from Kaplan and Norton and Palladium Group, visit www.strategyexecutions.com.
it’s here: managing strategic initiatives The latest BSR Reader, featuring six definitive articles on this essential element of strategy management, is now available. Check it out (along with more than a dozen other BSR Readers) at www.strategyexecutions.com.
organization
gov’t/nonprofit
for-profit
average
architect Define Process
100%
86%
93%
Oversee Process
100%
100%
100%
process owner
osm roles
Now that the OSM has reached critical mass of sorts, it seems appropriate to look at the state of the art in its design, roles and responsibilities, staffing, and reporting lines. We also wonder what organizations are doing to institutionalize the practice—much as many have done with their strategy management system in general—to protect it against the vagaries of leadership changes. Through multiple surveys and interviews, we investigated these practices and plans among exemplars of strategy execution: Palladium BSC Hall of Fame winners.
1. Develop Strategy
100%
72%
86%
2. Translate Strategy
86%
100%
93%
3A. Align Organization
100%
86%
93%
58%
72%
65%
3B. Communicate Strategy 4A. Plan Initiatives
72%
44%
58%
4B. Manage Initiatives
86%
86%
86%
100%
86%
93%
5,6. Review Strategy
integrate with others
The OSM Concept in Practice
Human Capital
16%
44%
30%
Originally, the OSM was conceived to handle up to nine functions. Later design formulations include 10 or more roles and responsibilities. But no matter how many specific functions or processes the OSM is responsible for, at its core it plays three primary roles:
Financial Resources
44%
44%
44%
1. Architect of the integrated strategy management system. The OSM is responsible for defining the strategy management framework and its governance conventions, as well as designing the strategy management processes themselves. 2. Process owner of certain strategy management processes. Among those it is uniquely qualified to orchestrate are designing strategy maps and scorecards, cascading the scorecards throughout the organization to ensure alignment, and managing the strategy reporting process. 3. Consultant and coordinator with other key strategy support functions, such as finance, HR, and IT. The OSM works with these departments to ensure that the necessary resources are available to enable strategic initiatives. This role can also include focusing on process management to ensure that the strategy is linked to the operational system: overseeing process analysis, reengineering, and quality management.
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IT Resources
16%
16%
16%
Key Business Processes
44%
44%
44%
Quality Programs
58%
30%
44%
Best Practice Sharing
44%
58%
51%
Significant Responsibility
Some Responsibility
No Responsibility
FIGURE 1: HALL OF FAME ORGANIZATIONS’ ADOPTION OF OSM ROLES AND RESPONSIBILITIES The greatest difference between for-profits and governments/nonprofits in a process ownership role is in planning initiatives.
Recently we examined the approach taken by Hall of Fame organizations in assuming these three roles. Figure 1 presents data derived from 20 organizations; 10 each from the for-profit and government/nonprofit sectors. These Hall of Fame organizations have clearly taken the OSM message to heart. All of them are using the OSM to play the role of architect. In these organizations, the OSM takes the leadership role in defining and overseeing the strategy management system (i.e., its processes), and is also responsible for overseeing its ongoing evolution. In addition, many of these OSMs have undertaken the role of process owner for all seven of the processes listed. The majority of the nonprofit organizations (72%) assume responsibility for initiative planning, whereas fewer than half of the for-profit organizations play this role (44%). In
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contrast, 86% of OSMs in both sectors assume responsibility for initiative management. (To be clear, by “planning initiatives,” we mean being instrumental in designing and administering a process for rationalizing and prioritizing initiatives in conjunction with resource allocation and planning; by “managing initiatives,” we’re referring to the ongoing process of monitoring initiative performance against targets, evaluating their strategic relevance over time, and assessing the performance of the portfolio of initiatives—rather than project managing.) We believe that most, if not all, organizations will come to value the role of the OSM in both initiative planning and initiative management and that any residual political resistance to the idea will continue to erode in most organizations.
SIZE OF OSM STAFF (NUMBER OF FTEs)
+ 20 18 16 14 12 10 8 6 4 2
300–1,000
1,001–5,000
5,001–10,000
10,001–100,000
NUMBER OF EMPLOYEES = Gov't/Nonprofit organization
= For-profit organization
FIGURE 2: OSM STAFF SIZE IN 18 HALL OF FAME ORGANIZATIONS Most OSMs, regardless of organizational size, had between 5 and 10 FTEs, as shown by the dashed box.
The OSM at New Zealand’s Kiwibank is the steward of enterprise portfolio management and coordinator of strategic initiatives. It influences the allocation of resources for these initiatives and ensures that the initiatives are balanced across strategic themes. The OSM also runs the bank’s Strategy Network, which facilitates best practice sharing. It sits within the business transformation team alongside the business improvement (Lean Six Sigma) team. This arrangement helps embed process improvement and operational excellence in the bank’s organizational DNA. Recently the program management office (PMO) was also co-located within the business transformation team. When asked what it would do differently if the bank had it to do over, our contact said, “Build the OSM faster. What’s important is having sufficient capability to support the business units. It’s not necessary to have a large OSM, but it is important for a small number of people to be able to develop skills in critical areas so that needs can be addressed quickly.”
In the course of developing a wellintegrated management system, it makes sense that an organizational entity that is responsible for managing a process also plays a significant role in planning that process’s activity. Another example of this reasoning— the logic of connecting planning and managing activities—concerns the OSM’s role in strategy communication. Most organizations have a corporate communications office that is responsible for connecting with internal and external audiences, whether to share news, explain the strategic direction, or educate the marketplace. Historically the people responsible for setting strategic direction and performance monitoring have worked through the existing communication capabilities (i.e., corporate communications) of their organization. We have seen many examples where those responsible for strategy execution have been frustrated by the inadequacies of the existing communication system. Corporate communications departments don’t always do a good job
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of communicating the strategy. Many organizations with an OSM have let the OSM assume responsibility for strategy communications; in our sample of Hall of Fame organizations, more than half have taken this on (58% of the nonprofits and 72% of the for-profits). We believe that organizations will increasingly adopt this approach. They will either establish their own communication capabilities in the interest of more effectively executing their strategies, or they will work more closely with the existing corporate communications office to ensure that people there are up to speed on the importance and implications of the strategy. Helping people understand the strategy—and their role in making it happen—is one of the most powerful levers that an OSM has available.
Size By now the evidence is clear: the OSM has become a valuable organizational structure for making strategy execution a sustainable capability in any organization. Based on a 2009 survey of 25 Hall of Fame organizations (conducted to establish the benchmark for strategy management processes), nearly all (84%) have established this function. Most of the rest are in the planning phase. But, given the long list of roles and responsibilities that an OSM can assume, the question arises, How large should the OSM be? How many FTEs (full-time equivalents) are needed to get the job done? After all, there is a limit to how long your senior staff can accept the responsibility of managing so crucial a task as strategy on nights and weekends. We examine this question through the lens of 18 Hall of Fame organizations. (See Figure 2.) The area outlined with the dashed box shows that the predominant response is somewhere in the range of 5 to 10 FTEs. This finding holds across a wide range of organization sizes. The right size for the OSM seems to be the same whether your organization has only a few hundred or tens of thousands of employees. The
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3
report to top
report to one level down
report to two levels down
gov’t/nonprofit
40%
60%
0
for-profit
80%
20%
0
total
60%
40%
0
FIGURE 3: OSM REPORTING LEVELS FOR HALL OF FAME ORGANIZATIONS We wonder: Why the disparity between for-profits and governments/nonprofits?
primary activities of the OSM require a core team to design and administer the processes. Then, depending on the size of the organization, the strategy management model can be implemented by leveraging an extended team of FTEs assigned to the strategy execution process across the organization. For example, at Bahrain Electricity and Water Authority, an eight-member core OSM team is responsible for coaching theme leaders. This OSM team documents issues that require cross-organizational decision making. And it ensures that strategic priorities, identified during strategy reviews, are brought up at operational review meetings and assigned to appropriate operations personnel for implementation. The core OSM team is responsible for capturing important strategic information and uses its knowledge to tap other parts of the organization for action. Other organizations reveal a different story through the size of their OSM. For example, at Grupo Modelo, the OSM became very large during the time of this survey because of a major reengineering and systems integration effort. And because of the strategic importance of this project, the reengineering team was temporarily attached to the OSM. Apart from this special circumstance, there are currently eight FTEs in the company’s OSM. Another 10 to 12 people are responsible for initiative management, and a distributed group of 25 individuals (one per scorecard) spends about half its time on strategy management activities. In total, there are 20 FTEs with another 25 half-timers. In other cases, larger OSM organizations reflect the combination
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of other functional specialties that are considered to be strategically important, such as risk management, quality management, the project management office, and so on. We discuss the implications of these developments a bit later.
Reporting Relationship As is true with much of organizational life, the higher an entity’s reporting lines in an organization, the more important the entity is considered to be. We have argued for many years that strategy execution is the most important responsibility of the chief executive officer— after all, it’s in the job title! Any CEO who wants to execute strategy successfully should play a direct role in overseeing or orchestrating this function. We have therefore advocated that the OSM report directly to the CEO. The next best option is reporting to a direct report of the CEO (such as the CFO or the COO) and allowing direct access to the CEO through a dotted line reporting relationship. We call this a dual relationship. Any other reporting relationship (two or more levels away from the CEO) is a bad sign. It could mean that the CEO doesn’t view strategy execution as part of his responsibility. Or it could mean that the OSM is still early on in the process of “educating up” and that the CEO doesn’t yet appreciate the value of investing in a Balanced Scorecard and strategy management system. For many organizations, the journey from performance measurement to strategy management can take months, if not years. In our sample of 20 Hall of Fame organizations, the OSMs report directly either to the CEO or to an executive one level
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down. (See Figure 3.) In this figure, we see that for-profit firms typically have the OSM report directly to the top of the house. In nonprofits this arrangement happens in fewer than half of the organizations. In mission-driven organizations, it’s possible that strategy effectiveness is viewed in less concrete terms than in for-profit firms, where success is often measured in financial terms. This difference in outlook might explain the apparent difference in reporting approach taken by these two sectors. Nevertheless, in no instance does the distance between the OSM and the CEO span more than a single level. Therefore, based on these examples, we would proclaim this to be a best practice example—what other organizations should strive for. At the pediatric healthcare institution Nemours, the Nemours Center for Process Excellence (effectively its OSM) reports directly to CEO David Bailey. The center supports enterprise strategy by developing teams of internal educational and business process consultants who are deployed where needed to promote an understanding of the strategy management system and to improve processes to meet performance targets. Says Bailey, “The OSM was the single most important factor in the success of our strategy execution program.” The Nemours case provides fitting testimony to our call for positioning the OSM at the level of other senior staff offices. Reporting to the CEO (or no more than one layer down) signals the importance that strategy execution is given and the authority it can then use to ensure that its roles are performed and responsibilities met.
The Evolution of Process Ownership By tracking the evolution of OSMs, we have witnessed growth in the roles and responsibilities OSMs have taken on. There appear to be at least three phases in the evolutionary life cycle of OSM organizations. During the first phase,
the OSM deals with the basics of strategy management: the processes that fall within the architect role (defining and overseeing the strategy management system) and the process owner role (develop, translate, and review strategy using strategy maps, BSCs, and their related elements; align the organization; and plan and manage initiatives). Once it has mastered the basics, the OSM moves to the next phase: integrating the basic strategy management processes with other specialized functions that also have a cross-cutting role in the organization. So, in phase 2, the OSM works increasingly closely with HR, Finance, and IT to ensure that the right mix of resources is available to enable the strategic resources called for by the strategy and may also begin to link strategy with operations. For example, a new strategic initiative to provide
instances. For example, BancoEstado Microempresas, Chile’s first microlender and a market leader in Latin America, grew its OSM into the Office of Strategy Development and Control over the course of four years. (See Figure 4.) By mastering the basics, this OSM was able to become the locus of an expanding set of roles that now includes strategic planning, project management, ownership of the strategic control model, innovation, and, in 2010, financial control. This OSM reports functionally to the planning division but also works directly with the CEO. During this evolution, BancoEstado’s OSM grew from three FTEs in 2006 to 11. In addition to hosting strategic management meetings, this OSM convenes strategic learning workshops in which management teams meet to share
Strategy execution is the most important responsibility of the CEO. Therefore, any CEO who wants to execute strategy successfully should play a direct role in overseeing or orchestrating this function. training to a customer support service center could require funding to obtain new software, select staff or recruit new personnel, and provide IT integration services to embed the new tools in the support infrastructure. All these resources must be lined up as part of bringing the new initiative online. Making the link to operations often requires that OSM personnel develop expertise in process design and innovation along with a focus on quality management (e.g., Lean Six Sigma). The ownership and mastery of strategic communications are other competencies that the OSM usually takes on during phase 1 or 2. Once the basics are well established and as the OSM reaches its second phase of maturity, it often begins to play an even larger organization-wide role by providing a home for other cross-business functions. Specialty capabilities such as risk management, project management, innovation, and even financial control have been assigned to the OSM in some
lessons about strategy execution and operations throughout the organization. The strategic learning workshops provide a forum for developing leadership and building high-performance teams that gain an understanding of how their contributions yield strategic performance outcomes. At Korea Customs Service (KCS), the OSM was initially operated separately from the organization’s strategic planning, budgeting, and finance units. Cross-unit communication and collaboration suffered, hampering strategy execution. KCS took corrective action by consolidating performance management, strategic planning, budgeting, and finance under one roof—the Planning and Coordination Bureau. Today its OSM includes 14 full-time employees and reports to the bureau director, with dotted line reporting to the CEO. The evolution of an OSM’s role within the organization is often reflected in its
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Financial Control
Innovation
Innovation
Strategic Control Model
Strategic Control Model
Strategic Control Model
Project Management
Project Management
Project Management
Project Management
Strategic Planning
Strategic Planning
Strategic Planning
Strategic Planning
2006
2007–2008
2009
2010
FIGURE 4: EVOLUTION OF RESPONSIBILITIES OF BANCOESTADO MICROEMPRESAS’S OSM
name, which may change over time to signal the broader areas of responsibility it has assumed. For example, at China’s Rainbow Department Store the OSM goes by the name Department of Strategy Management and includes the strategy planning, process management, and initiative management functions, the latter two added in 2008. At the Bahrain Ministry of Works, the Strategic Planning and Quality Management Section now integrates with the Project Management Office. And at Lakshmi Machine Works, the OSM is now called the Office of Strategy and Risk Management. These examples support the idea that because successful strategy execution requires a cross-functional integrative function—à la the Office of Strategy Management—this function can become the home of other specialized functions as well. Thus, we see many examples of how risk, quality, sustainability, project management, and other specialized functions can benefit from being brought under this umbrella. However, a word of caution is in order here. The OSM is intended to provide guidance and integration to such specialized capabilities when they constitute important resources required by the strategy. But the OSM should not be viewed as a parking lot for specialties that are not truly strategic. For example, large-scale reengineering efforts or
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ambitious IT investment projects may not be strategically aligned, and yet there may be pressure to locate them under an office that, by its very name, creates an aura of strategic significance. We advise strategy management officers to assess the political motivation of any would-be partners to confirm the legitimacy of the new initiative in the context of the strategic agenda. Especially during the early years of an OSM, it is critical to establish a track record of successful implementation upon which additional responsibilities can be based. Better to tackle the basics before accepting new roles that cannot effectively be shouldered. Bahrain’s Ministry of Works focuses on managing and improving strategy through the lessons it gleans from reviewing strategy performance and execution. These lessons provide the feedback that the ministry uses to refine and adapt the strategy. The OSM is responsible for conducting quality assessments of strategy documentation, implementation activities, and best practices. Philosophically, it views strategy as a hypothesis that must be tested and refined. Therefore, strategy is constantly evolving. This mental model facilitates organizational agility because managers willingly respond to feedback from strategy updates that may require action before the next regularly scheduled review cycle.
Next-Generation OSM We have now laid out a model for evolving your OSM. The three phases— introduction (mastering the basics), integration (collaborating with other specialized functions), and extension (giving a home to other extended capabilities)—provide a growth trajectory that will occupy even the most aggressively Strategy-Focused Organizations for three or more years. Making your OSM evergreen is an important requirement once you have successfully implemented your firstgeneration OSM. For many organizations, the initial incarnation of the OSM
Six-year cycle refined annually
Strategy planning (formulating)
Strategy Operationalizing
Monthly progress reports
Strategy management (executing, aligning, integrating, monitoring)
Operational Performance and Learning
Operational management (project management)
FIGURE 5: THE CYCLE OF STRATEGY REVIEW AND IMPLEMENTATION AT BAHRAIN’S MINISTRY OF WORKS The OSM is at the heart of the strategy cycle at this government organization.
is dedicated to managing the traditional activities associated with the KaplanNorton Balanced Scorecard methodology: translating the strategy (building strategy maps and scorecards) and aligning the organization (including communicating the strategy). But these are only two of the six stages of the Kaplan-Norton Execution Premium model. Once these basic capabilities are established, the OSM must expand its capabilities to facilitate strategy reporting and reviews (to answer the question, “Is the strategy working?”) and then move on to further test and adapt the strategy (“Is this the right strategy?”). The closed-loop system then brings you back to the beginning of the process, and strategy development begins anew. The OSM can and should play a role in each of these stages, as either an architect, a process owner, or a process consultant or coordinator. Bahrain’s Ministry of Works provides a useful example of how the Kaplan-Norton philosophy is used to drive the continuing cycle of strategy execution, review, and update. (See Figure 5.)
David P. Norton, along with Robert S. Kaplan, created the Balanced Scorecard concept. The two have coauthored five books (most recently, The Execution Premium, 2008) and eight articles for Harvard Business Review, and dozens of articles for Balanced Scorecard Report. They have also been named among the world’s most influential business thinkers by Suntop Media’s “Thinkers 50.” Randall H. Russell (BSR’s executive editor) facilitates a global community of strategy execution professionals (Office of Strategy Management— Advisory) that meets regularly to share best practices, learn about next-generation practices, and advance the strategy management profession. He also leads Palladium’s Execution Premium Assessment practice.
Continue the dialogue Join Randy Russell in a conversation with other members of the global community on the question “How mature is your OSM?” at www.thepalladiumgroup.com/bsr/ OSMStateOfTheArt. Reprint #B1101A
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What Leaders Are Thinking: Perceptions of Strategy Execution and Leadership in the Asia-Pacific Region By Matt Tice, Managing Director, and Michael Craner, Practice Leader, Leadership for Execution, Palladium Group, Inc. (AsiaPacific); and James C. Sarros, Professor of Management, and Brian K. Cooper, Senior Lecturer, Department of Management, Monash University It all started with a simple question: How were executives coping with the global financial crisis? Two years later, researchers at Palladium Asia-Pacific and Monash University (Australia) have launched a multiyear study of the role of leadership in strategy execution. Here, the team compares findings from the initial survey and their 2010 follow-up survey, revealing executives’ conviction that execution matters most—and that leadership takes top spot as its key driver. Now comes the hard part: understanding why half claim only lukewarm performance in translating strategy into action. In early 2009, members of the Palladium Group and a team from the Department of Management Leadership Group at Monash University surveyed 141 senior executives at organizations in the AsiaPacific region to learn how they were coping with the global financial crisis. We were interested in learning executives’ perceptions about the crisis—its severity and likely duration—and its impact on their organizations’ business prospects and performance, as well as on their ability to weather the changes the crisis brought. In addition to soliciting their outlook, we asked the executives what they considered the critical ingredients for successful strategy execution. The results of that study were reported in a Palladium Group white paper, Executing Strategy in Times of Uncertainty, released in April 2009.1 Among the key findings of the 2009 report: more than 80% of the executives surveyed felt that intense, rapid change has become the new status
quo and will not abate with the end of the financial crisis. An even greater percentage (92%) foresaw the economy worsening or at best staying the same over the next 12 to 18 months. Yet most of the executives felt they were weak in adjusting their strategy in time to adapt to rapid changes—a limitation we would characterize as meaning that the critical link between strategy and operations was often broken, if not missing. Given the state of the global economy at the time, it was hardly surprising that most organizations were less than optimistic about the region’s business environment over the near to medium term. Had attitudes and practices changed much a year later, as the crisis worked its way through the global economy? To find out, we repeated the survey in early 2010. This time, we had 545 respondents, nearly four times that of the 2009 survey (N=141). The broad sector breakdown was similar to that of the previous year’s study: 67% private sector organizations
(versus 63% in 2009) and 24% government organizations (the same as in 2009), with the rest a smattering of nonprofits and “other.” As in 2009, organizations were drawn from a wide spectrum of industries, including financial services, manufacturing, healthcare, IT, defense, and pharmaceuticals. Most of the 545 organizations were located in Australia (45%), with the next-largest group (28%) from Korea. Sixty-one percent had more than 500 employees. Most respondents were senior managers, 21% were CEOs or board members, and 37% were direct reports to the CEO; in other words, all had significant responsibility in their organizations for developing, implementing, or executing strategy. Respondents said they were highly conversant with strategy, with 30% in 2010 updating their strategy continuously as part of their strategy management process, and a further 45% updating their strategy at least annually—similar to the 2009 responses.
Performance Outlook Compared with the 2009 survey, the outlook in 2010 for the forthcoming year was markedly different. In 2009, only 21% of respondents believed their organization’s prospects would improve over the ensuing 12 months, whereas in 2010, nearly three times that number (61%) were optimistic that performance would improve. Why the disparity? For one thing, as it turned out, the two biggest geographies represented in the 2010 study—Australia and Korea— managed through the global financial crisis relatively well. Technically, Australia didn’t experience a recession, and South Korea bounced back from a 4.5% decline in GDP in January 2009 to record seven quarters of positive (although at times, fluctuating) growth. The optimism in the most recent survey is consistent with the findings of the Conference Board’s CEO Challenge 2010: the topmost concerns associated with the global fi-
1 To obtain a copy, visit http://www.thepalladiumgroup.com/bsr/uncertainty.
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2009
Leadership commitment
2010
n
%
n
%
57
14
223
16 (1)
Translating strategy into operational objectives
73
18
220
16 (2)
Understanding strategy throughout the organization
54
13
161
12 (3)
Alignment across the organization
38
9
149
11 (4)
Having a clear vision, mission, and values
41
10
143
10 (5)
Measuring progress against the strategy
39
9
135
10 (5)
Well-executed initiatives
28
7
117
8 (7)
Regular communication from leaders
26
6
65
4
Alignment of budgets to strategy
22
5
53
4
Linking individuals’ incentives to the strategy
21
5
49
4
Being innovative
10
2
37
3
A clear governance process
7
2
Other
26
2
10
0
FIGURE 1: KEY INGREDIENTS TO SUCCESSFUL STRATEGY EXECUTION In the 2010 survey, “leadership commitment” advanced to the top in perceived impact on strategy execution.
nancial crisis of late 2008—global economic performance and business confidence—have now fallen off the list of the top 10 issues.2
Continuous Change Is the New Normal In Palladium’s 2009 survey, conducted at an early stage in the financial crisis, 81% of respondents said that they felt change was a constant, and 85% said that competition in their local market was intense. By 2010, 89% felt that change was not merely constant, but in fact was accelerating. That same percentage said competition had become even more intense. This result may well explain why the number of respondents reporting that they were monitoring the environment continuously almost doubled, from 24% in 2009 to 43% in 2010.
Execution Matters Most, and Leadership Is the Critical Factor In both surveys, more than 80% of respondents called strategy execution the most important factor that “makes the difference” in performance. This finding also accords with the finding in the Con-
ference Board’s CEO Challenge 2010 that CEOs consider “excellence in execution” and “consistent execution of strategy by top management” the top two challenges, respectively, that they face. We asked our respondents to identify the key ingredients for successful strategy execution based on a list of 12 factors. (See Figure 1.) From 2009 to 2010, most of the factors contributing to successful strategy execution remained unchanged in importance. The 2009 survey highlighted the importance of leadership commitment (doing what you intended and being willing to learn a better way) and alignment to successful strategy execution. The top three remained the same, but in 2010, “leadership commitment” advanced to “most important” in terms of its impact on strategy execution, tied with “translating strategy into operational objectives.” Why? It’s unlikely that such a change is a function of sampling bias because respondents’ demographic distribution was similar from year to year. Anecdotally many executives in Asia-Pacific comment to us that they
have managed during this recession much better than in previous recessions. Action was taken quickly, with high levels of consultation with key internal and external stakeholders. Employees and their representatives generally responded positively to the strong direction and constant communication. Organizations that had spent the previous couple of years in a “war for talent” were mindful of the need to be innovative and collaborative rather than to simply reduce head count. This practice is consistent with the survey finding that respondents view leadership commitment as an even more important component of strategy execution following the global financial crisis. In both surveys we asked executives to rank how well their organizations performed over the previous year in applying some of these key ingredients for successful strategy execution. Translating the strategy includes prioritizing initiatives that support the strategy, identifying actionable objectives that will help drive performance, translating long-term strategic targets into shortterm operational ones, and measuring nonfinancial drivers of performance. In both years, only about half of the respondents ranked their level of performance as “moderately good” to “very good.”
The Key Ingredients for Leadership If strategic outcomes are to be achieved and sustained, leaders must behave with consistency and honesty. We asked the respondents, “What elements of leadership behavior contribute to successful strategy execution?” In both surveys, respondents ranked “showing consideration for employees by treating them as individuals and providing them the opportunity to develop” as a key contributing factor. This is consistent with earlier research that demonstrates that the leadership behaviors “individualized consideration”
2 L. Barrington, CEO Challenge 2010: Top 10 Challenges, The Conference Board, 2010. Of the 444 CEOs surveyed, 22% represented Asian companies.
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Matt Tice, managing director at Palladium Group (AsiaPacific), has been a member of the Kaplan-Norton team for 10 years and has worked with countless clients throughout the world to create value through rapid and effective strategy execution.
The Study: Leadership for Execution of Strategy Palladium Group Asia-Pacific is partnering with the University of Queensland and Monash University to undertake three years of applied research on the topic “Leadership for Execution of Strategy.” This research project is funded in part by an Australian Research Council (ARC) grant, the most prestigious federal government research grant awarded to universities in Australia. ARC grants are awarded to academics on the leading edge of research in their respective fields who are partnering with private or public sector organizations. The lead researchers are Professor James Sarros (Monash University), Professor Charmine Hartel (University of Queensland), and Matt Tice and Michael Craner (Palladium Group Asia-Pacific).
(coaching, supporting) and “intellectual stimulation” (developing) foster innovation and productivity because workers feel empowered and important in the organization. Another key factor cited by respondents was leaders’ ensuring they do what they say they’ll do, thereby earning employees’ respect. Clear and positive communication is essential here because it helps ground the organizational vision in visible leadership behaviors. So leaders who inspire an organizational vision; are clear about the organization’s values; behave in a manner consistent with their words; support staff; engender trust, cooperation, and innovation; instill respect; and encourage and recognize staff are seen as critical to success. In short, as James Sarros and his coauthors describe in the forthcoming book Cool Head, Warm Heart, Clean Hand: Leading Better, Faster, and with Impact, leading with the heart (through support and encouragement), the hand (through ethical actions and behaviors), and the head (through a clear vision) are fundamental attributes of leaders and also seem to be critical for strategy execution.3
Why the Disconnect? From the Conference Board’s CEO Challenge, we know that excellence in execution and consistent execution of strategy by top management remain the top challenges for senior executives. And from our own survey we know that
Michael Craner, practice leader of Leadership for Execution at Palladium Group, is passionate about developing people. He has more than 30 years’ experience in human resources, consulting, and line management. James C. Sarros, professor of management and director of the leadership research group at Monash University, is one of the foremost authorities on leadership. He has published 10 textbooks and more than 100 articles in leading international journals.
executives consider leadership critical to execution success. Yet if execution is so critical, and if leadership is such an important driver, why do only 50% of organizations say their level of performance is “moderate” to “very good” in turning the strategy into clear and actionable objectives that drive a shift in performance? What explains this disconnect between what leaders view as critical and what they actually practice? What are the specific success factors for leadership in effective strategy execution? This disconnect between importance, desire, and reality—and the question of leadership in strategy execution—have led Palladium Group’s Asia-Pacific team and its partners to embark on a threeyear applied research project, “Leadership for Execution of Strategy,” with the objective of understanding the intricacies and key success factors for leadership in successfully executing strategy. Thus far, we have researched the literature, conducted interviews, and developed a model of leadership for strategy execution through workshops with client organizations. Our next steps will entail testing the model and conducting global research. Balanced Scorecard Report plans to keep readers informed as the research progresses, and we invite any organizations to participate in this groundbreaking global research project. Contact
[email protected].
Brian K. Cooper is a senior lecturer in the Department of Management at Monash University. He specializes in research methodology, with particular interest in the areas of leadership, organizational performance, and employee well-being.
To learn more In case you missed it, BSR’s November– December 2010 issue featured Robert Kaplan on “Leading Change with the Strategy Execution System” and Mark Hefner on “The Top Ten Attributes of Effective Leaders.” The entire issue and individual articles are available at www. strategyexecutions.com. Also, check out the BSR Reader Leadership, and explore other articles related to leadership and mobilizing for change in the new BSR Index 1999–2010, available free at the above web address.
Continue the dialogue Is there a disconnect at your organization between what leaders view as critical and what they practice? What do you think about the leadership/execution link? Join Michael Craner to discuss leadership and strategy execution, and the Leadership for Execution of Strategy project, at www.thepalladiumgroup.com/bsr/ CranerLeadership. Reprint #B1101B
3 I n addition to the author’s forthcoming book, see James C. Sarros (ed.), Contemporary Perspectives on Leadership: Focus and Meaning for Ambiguous Times (Tilde University Press, 2009). j a n u a r y – f e b r u a r y
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How to Embed Innovation into Your Organizational Culture By Cassandra Frangos, Ed.D, Director, Cisco Center for Collaborative Leadership Recent investigations about innovation reveal that companies that innovate successfully and steadily do so by managing innovation holistically in a systematic, integrated fashion across the entire enterprise. They incorporate it into every activity that touches customers, partners, and suppliers. Cassandra Frangos, former human capital practice leader at Palladium Group, recently researched the practices that top innovating companies embed throughout their organizations. Here, she shares some of the common practices through which such organizations move innovation from its often segregated position as a classic “internal process” to one that permeates multiple performance dimensions—and that occurs on an ongoing basis. The business literature abounds with information on what innovation is and why it’s important, but much less research has been dedicated to how organizations can sustain innovation. What practices do the most consistently successful innovators use to turn brilliant ideas into measurable business value? Although my focus is on new product ideas, I also include in the definition of innovation new ways of delivering existing products, new approaches to resolving customer relationship problems, and processes for training employees more efficiently and effectively—any idea, that is, that can add business value. Successful innovators value promising new ideas at all levels of the organization, viewing them as part of making strategy everyone’s job. Through my field research, I discovered that successful innovators apply specific practices related to culture, talent management, and organizational structure— areas that lie within the foundational learning and growth perspective of the Balanced Scorecard and link to the customer and process perspectives. These practices transcend functional areas. (See Figure 1, opposite.) In addition, successful innovators manage these
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specific practices across the three basic phases of the innovation process: phase 1 (generating ideas), phase 2 (moving ideas to reality through sponsorship or funding), and phase 3 (adopting ideas by commercializing them or enabling internal or external customers to apply them). (See Figure 2, opposite.) Although my research uncovered some fascinating approaches to generating ideas (including novel idea-generating exercises and flexible reporting hierarchies), my focus here is on the areas that usually get less attention—and where organizations get tripped up. Phase 2 (moving ideas to reality, the subject of this article) and phase 3 (adopting ideas, the subject of a subsequent article) are at the locus of strategy execution— where strategy and operations are linked. Here, let’s consider the culture, talent management, and structural practices that successful innovators apply in moving ideas to reality.
Culture Successful innovators shared three cultural characteristics—characteristics easily translated into one or more strategic objectives in the BSC—that encourage risk taking and reward people for moving good ideas toward reality.
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Conversely, risk-averse organizations tend to discourage innovation. However, the risk that people tend to fear most is not financial loss or wasted time; rather, it is damage to their pride, status, or prestige if they should fail. So at an especially tough time—as innovation budgets are constrained by economic uncertainty, intense competition narrows the margin of error, and impatient shareholders watch executives closely—how can organizations encourage their people to take risks? Objective: Celebrate mistakes. At DuPont, a manager recalled how a group in his department had tried an innovative approach to a problem that had failed miserably once it was put into action. Rather than ignore the failure, he held a celebration to acknowledge the failure as “a good try.” At Hershey Foods, a manager instituted the “Exalted Order of the Extended Neck” for employees who exhibited entrepreneurship. At Johnson & Johnson, they say, “Failure is our most important product.” To make this approach work, managers must be clear about what constitutes a reasonable mistake. A typical guideline: “Fail fast and cheap.” In companies that measure everything, how do you assuage people (or teams) who fear they may be racking up more mistakes than successes—even if they’ve produced more successes than risk-averse peers? By tracking the number of failed attempts it takes to reach a success, companies can create a measure that will motivate rapid prototyping. This practice helps establish a certain number of failures that become acceptable for learning purposes. Objective: Model risk tolerance. When business leaders model a tolerance for risk, others become more willing to take the chances needed to realize promising ideas. To model risk tolerance, leaders must first closely examine their own attitudes toward risk taking and failure and then avoid any behaviors that discourage risk taking (such as punishing people when their ideas don’t work out).
Said one executive I interviewed, “If we have 100 percent success, then we’re not taking enough risks.” So what percentage of failure is acceptable? Obviously, that percentage (a range, really) will vary from organization to organization, based on the industry, the type of project, and other factors. Organizations that track innovation initiatives within their overall initiative portfolio can take advantage of tools to track costs against budget. Sophisticated analytics may also help provide historical risk–return payoff data that can help decision makers set thresholds, which then can be incorporated into the organization’s scorecard.
New revenue sources
outcome
Sustained growth
Increased value for customers
Customer co-creation
customer
innovation any new or novel idea that adds business value
organizational theme/focus
learning & growth
Maximize shareholder value
External/internal sources of ideas and innovation
New product development
Internal change and transformation
Culture
Talent
Structure
Invest in knowledge sharing
Value ideas at all levels
Ambidextrous org. structure
Encourage risk taking
Invest in leaders who inspire innovation
Collaborative teams
Reward for innovation
Develop a pipeline of future innovations
Leverage social networks
Objective: Provide the right rewards. To encourage risk taking and innovation, you must reward it. Rewards need not be financial. Indeed, research shows that innovators view recognition from management, colleagues, and others as being more powerful than financial rewards. How creative a person feels at work is another strong driver of innovation. A study of programmers found that a large majority of them reported frequently reaching “flow”—that state of exhilaration characterized by a feeling of control and purpose in which people are able to perform at their peak. Flow can turn even the most unpleasant tasks into enjoyable, rewarding challenges.1
FIGURE 1: AN INNOVATION STRATEGY MAP (WITH SAMPLE OBJECTIVES) Objectives in the learning and growth perspective clearly and unambiguously support the innovation strategy.
Moving an idea toward reality entails hard work and requires people to stretch their limits and persevere. People need incentives to reach beyond their formal job responsibilities and to combine organizational resources in new ways. Organizations can encourage this stretching by designing a reward system that emphasizes investment in people and projects rather than payments for past services. This incentive approach prompts people to move into challenging jobs, gives them budgets to tackle projects, and rewards them afterward with opportunities to tackle even more ambitious projects in the future.
FIGURE 2: CULTURE, TALENT, AND STRUCTURE AT EACH PHASE IN THE INNOVATION PROCESS Here, we focus on specific practices across these three areas in Phase 2.
phase 1: Idea Generation
culture
talent
structure
phase 2: Moving from Idea to Reality
phase 3: Adoption of an Idea
Idea generation valued at all levels
Risk taking and reward
Knowledge sharing
Preparing talent to be creative and generate ideas
Qualities of innovators and leadership talent
Preparing and grooming future talent
Structure to generate ideas and devote time to idea generation
Structuring teams
Organization structure
Effective rewards can take numerous forms, including public recognition, exposure to influential executives, and opportunities to undertake special projects a person feels passionate about. At one firm I studied, an employee who drove the implementation of an especially successful innovation was invited to present his idea to the board of directors. That opportunity gave him the recognition that led to a new career opportunity in the organization. The CEO even called him personally to offer to
unblock any bureaucratic obstacles he might later run into.
Talent Management Practices Once ideas are generated, a company’s talent management practices affect whether the ideas win the needed sponsorship and funding to be transformed into potential new products, services, or processes. Consider these talent management objectives. And consider making “innovators”—the idea generators as well as the leaders who manage
1 D. Pink, Drive: The Surprising Truth About What Motivates Us (Riverhead Books, 2009).
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them—a strategic job family that your organization could develop as part of its scorecard innovation theme.2 Objective: Value creativity by putting creative people in positions of authority. Uncreative people tend to kill good ideas, encourage bad ones, and—if they do not see something they like—demand multiple rounds of “improvements.” Because leaders help set the tone for innovation, they need to be innovative themselves or at least know how to draw on the company’s talent in the right ways to encourage innovation. Consider the example of the vice president of R&D at Procter & Gamble’s home care division. When a team was working on an incremental product-line extension, he received updates at predetermined milestones. But when P&G was developing novel products, such as the original Swiffer or the Mr. Clean Magic Eraser, he and the business-unit president would go into the company’s labs to review early prototypes and participate in daylong brainstorming sessions. Such deep engagement enabled him to get a better sense of the new products and share insights with the team. As he put it, “We are there with them to help and also to learn about the business before we have to invest in it.” 3 Objective: Ensure that leaders have the right characteristics. Leaders who encourage innovation have distinctive characteristics. Some companies define their ideal innovation champions with a list of traits—for example, “internally influential and willing to use her political capital,” “visionary about new products and innovation,” “willing to do things differently,” “skilled in understanding business and technical issues.” Cisco uses a nine-box matrix to evaluate potential leaders’ effectiveness as innovation supporters. Individuals who score in box 6 (high-performing pro today), box
8 (develop to excel; next generation), or box 9 (leading-edge; next generation) are eligible to take part in the company’s action learning forums, where participants explore ways to transform good ideas into new products, services, or processes. Objective: Recruit innovative talent. More companies today are using psychometric tests to identify creativity during the personnel selection process, such as the Innovation Potential Indicator (which measures an individual’s innovation behaviors) and the Team Selection Inventory (which measures an individual’s preferred teamwork climate for innovation). Some organizations actively recruit creative people who are difficult to work with—nonconformists who challenge authority and who question the status quo. These qualities, along with a willingness to ask hard questions, can help advance the process of idea generation to idea implementation. Other organizations look for competencies and personality traits that foster teamwork when they’re recruiting new hires. Gucci seeks job candidates who are comfortable with ambiguity, accept not having control over the final product, and function well in an environment without precise job descriptions.4 Objective: Understand what makes an effective innovator. As with leaders, effective innovators have defining characteristics. Managers who take the time to identify them can then deploy direct reports who possess them. As one expert explained, innovators have very strong cognitive abilities, including excellent analytic skills; they zero in on the most important points and waste no time on peripheral issues; they have the ability to think strategically even in highly ambiguous situations; and they
know how to extract information from specific areas of an organization and then garner organizational support for potential projects. David Small, corporate vice president of the Leadership Institute at McDonald’s, asserts that innovators know that the past is not prologue: “Just because this has worked in the past doesn’t mean it will work going forward.” 5 They can frame and reframe challenges from multiple vantage points and identify which solutions are most likely to be embraced by the influential people in the organization. They must also be able to walk into a conference room full of diverse constituents—including colleagues, customers, subordinates, bosses, vendors, and partners—and quickly discern each person’s underlying motivation. This is the art of bringing a diverse group onto the same page—and it’s essential to transforming a promising idea into a companywide innovation.
Organizational Structure In phase 2 of the innovation process— moving from idea to reality—teams are the most relevant type of organizational structure, according to research. But working in a team isn’t always easy, especially given the independent-mindedness of creative people. According to my interviewees, the most successful teams blend inside and outside perspectives, experience creative tensions, enjoy good leadership, maintain their focus on the client (whether external or internal), and enjoy open dialogue. Team members have good listening and technical skills, are willing to work hard, know how to have fun, share a passion for the work, and are willing to trust and support one another. Consider adopting the following objectives to build an effective innovation team.
2 R .S. Kaplan and D. P. Norton, “Strategic Job Families,” BSR November–December 2003 (Reprint #0311A). 3 S. Anthony, M. W. Johnson, J. V. Sinfield, and E. J. Altman, “Driving Growth Through Innovation,” Financial Executive, October 2008. 4 D. K. Rigby, K. Gruver, and J. Allen, “Innovation in Turbulent Times,” Harvard Business Review, June 2009. 5 J. Cohn, J. Katzenbach, and G. Vlak, “Finding and Grooming Breakthrough Innovators,” Harvard Business Review, December 2008. 12
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Objective: Foster connections with external stakeholders. By consulting with its stakeholders (whether outside the team or outside the company), a team will be sure to have the best available information on matters such as the resources available for idea development; will be able to build relationships with those who have the greatest investment in a positive outcome; will be able to see the project with fresh eyes; and will ensure that the outcome meets stakeholders’ needs. As the project progresses, positive feedback from management and the stakeholders will energize the team and foster unity. Objective: Select members who have strong social networks. Pick members not only for what they know, but also for whom they know—and how their social networks might aid the team. At each step, the right team members need to reach out and find needed information, develop proper contacts and support, and coordinate the tasks that will accomplish the purpose at hand—all according to the agreed-upon schedule.6 Having strong social networks makes it easier to accomplish these goals. Objective: Build a diverse team. When you put teams together, strive for diverse backgrounds and ways of thinking. The design innovation firm Ideo ensures that “eight crazy characters” are represented on each team: a Visionary, Troubleshooter, Iconoclast, Pulse Taker, Craftsman, Technologist, Entrepreneur, and “Cross-dresser” (no, not a transvestite, but someone who, for example, studied engineering but fell in love with design). Objective: Create a team charter. Set the stage for success by creating a charter that spells out the team’s mission, objectives, and degrees of freedom. Without a charter, the team may assume that it can do things it cannot do, presenting risks that the company is not willing
to consider. Even worse, members may assume that they cannot do things they can do. Teams that fall into this trap end up creating close-to-the-core, lackluster strategies. They may become paralyzed or waste time analyzing unimportant issues. Objective: Encourage collaboration. To encourage team members to collaborate with one another and with those outside the team whose support is essential, companies can spread leadership and decision making widely. For example, one firm I studied created working groups that involve 500 executives. This move reflects a new philosophy about how business can best work in a networked world. Explained one executive: Today, our company is structured such that a network of councils and boards empowered to launch new businesses, an evolving set of Web 2.0 tools, and a new financial incentive system all encourage executives to work together as never before. Business-unit leaders who formerly competed with one another for power and resources now share responsibility for one another’s success. What used to be “me” is now “we.”
theme teams can be created at varying levels and for various purposes, not merely to cultivate innovation but also to move ideas into action.
By recognizing that innovation goes beyond idea generation—and needs an infrastructure for moving ideas toward reality and adopting them for the long haul—and by applying powerful practices related to organizational culture, talent management, and structure, organizations boost their odds of success significantly. These three types of practices pack the biggest punch when they’re mutually reinforcing. And they also gain power when they’re organized holistically in the broader strategy management framework. With a strategic theme of innovation that permeates the strategy map, with learning and growth objectives that define people and processes, and with initiative management tools and techniques to help track progress, leaders and managers can make timely, clear-headed decisions about when to keep going—or when to cut their losses and celebrate failure. Cassandra Frangos is a director in Cisco’s Center for Collaborative Leadership and leads Cisco’s Executive Action Learning Forum, a premier leadership development and business innovation program for high-potential executives. She was formerly human capital practice leader at Palladium Group.
The goal of this structure is to get more products to market faster. He continued, “The boards and councils have been able to innovate with tremendous speed. Fifteen minutes and one week to get a [business] plan that used to take six months!” 7 Finally, consider the value of theme teams in innovation. Increasingly, organizations are establishing such crossfunctional teams to advance strategic themes—components of the overarching strategy. Such teams draw from across business units, departments, and functional areas to advance strategy— frequently by identifying and monitoring strategic initiatives. Innovation
To learn more Frangos’s research involved in-depth interviews with innovation leaders, business leaders, chief learning or talent officers, and others at high-tech companies and an innovation design firm. Her white paper, “From Brilliant Idea to Measurable Business Value: How to Sustain Innovation in Your Organization,” also extensively cites leading research. To obtain a copy, please email her at
[email protected]. Reprint #B1101C
6 D. Ancona and H. Bresman, X-teams: How to Build Teams That Lead, Innovate, and Succeed (Harvard Business School Publishing, 2007). 7 E. McGirt, “How Cisco’s CEO John Chambers Is Turning the Tech Giant Socialist,” Fast Company, December 1, 2008.
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Technology Versus Process: Which Comes First? A Tech Leaders’ Q&A
measures drives dysfunctional behav-
By Randall H. Russell, Executive Editor, and Janice Koch, Editor
ing, for example) because it looks good
What is the optimal approach that organizations (as end users) should pursue to implement technology in the interest of enabling strategy management processes? Many organizations have already acquired considerable tech capability that they have yet to activate, simply because they lack sufficient maturity to leverage these tools productively. We asked two technology thought leaders—Frank Buytendijk of BeInformed (and formerly of Oracle) and Jonathan Hornby of the SAS Institute—to weigh in on what is for many a chicken-and-egg conundrum.
definitions to make it to the goal, wittingly doing the wrong thing (overspendon the metric, or lowballing targets. Having the right mix empowers people to make the same decisions you would have made, too. •D esigning a well-defined architecture. If you don’t embed strategy management software in your overall architecture, there can be no closed loop with your operations. Data will need too much transformation before they are usable within the strategy management frame-
BSR: Drawing on your experience with
specific to the industry. But there is no
work. And data about new strategies
organizations you’ve either worked with
business “side” and IT “side.” That’s a
will have trouble finding their way into
(as clients) or observed (as case stud-
fallacious distinction. All of these skill
operational processes and systems.
ies), what were the common elements
sets work as equals and, where possible,
• L et the tool guide you. Often users say
in place among successful automation
support and overlap each other as part
they’d like the new report/dashboard
implementations?
of the overall initiative.
process to look exactly like the old one.
• T here should be a clear business case.
Frank Buytendijk,
These are the business requirements.
BeInformed: Some orga-
“Making better decisions” is not it. And
However, the old way of working was
nizations turn everything
“Lowering total cost of ownership in
often based on the limitations of the sys-
they touch into gold,
compliance reporting” also misses the
tem in use at the time. We simply forgot
independent of the meth-
point. Clear business cases link strategy
that. Rebuilding a system based on the
odology or technology.
management to tangible business ben-
old system leads to a double mismatch:
Others never get it right, no matter how
efits, like higher customer satisfaction or
a process suffering from constraints that
much they follow best practices. Success
faster production time, or fewer number
no longer exist anymore, and a new sys-
is not in the instruments; it’s not a matter
of days of sales outstanding. In fact, you
tem that has trouble emulating old ways.
of copying best practices. Success is the
could use a strategy map to create those
Jonathan Hornby, SAS:
result of focus, dedication, endurance,
causal links. Currently, the killer business
Having a strong and
experience. Human characteristics. And
cases are in stakeholder management—
experienced project
these characteristics do lead to the fol-
for instance, supplier scorecards that
manager for an
lowing success factors (or pitfalls):
help overcome transactional relation-
implementation is
• Organizing the governance of the initiative in a center of excellence. Just as money is governed by finance, people are governed by HR, and materials and facilities are governed by operations, so information (and the accompanying management processes) needs to be governed as well. Leaving strategy management and execution unmanaged is a huge pitfall. • Abandoning the notion of a business–IT divide. To get the automation of strategy management right, different skill sets are needed, such as IT skills, project management skills, and business skills
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iors such as discount mania, changing
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ships that are only about price and
probably the single
delivery terms; or customer scorecards
most important success factor. The top
in which customers can rate service
five areas this person should focus on
levels; or sustainability scorecards that
are (1) project definition and scope,
companies make available to the general
(2) communications and expecta-
public. By improving corporate transpar-
tions management, (3) risk and issues
ency, these initiatives support a specific
management, (4) change management
business goal and drive the right behav-
(in terms of project scope as well as
iors. The next killer business case will be
the organization), and (5) acceptance
about increasing collaboration within
management and training. Acceptance
the organization and about co-creating
management is the process of ensuring
business models between organizations
that a project delivers as promised and
and stakeholders.
that the users will accept and use the
• Understanding how measurement drives behavior. Having the wrong mix of
r e p o r t
technology. Without it, functionality or changes could be made that no one
uses or benefits from, which means
BSR: In your opinion, should an organi-
Balanced Scorecard Report
unnecessary spending and a greater
zation establish strategy management
A joint publication of Palladium Group, Inc., and Harvard Business Publishing
risk of pushback. (Think of it as you do
processes first and then automate, or
strategy. Strategy is a hypothesis; it
automate first? Until now, many expe-
can sound good, but may not deliver
rienced users—those with one or more
Editorial Advisers
great results.)
Balanced Scorecard implementations
Robert S. Kaplan Professor, Harvard Business School
A number of other success factors come
David P. Norton Director and Founder, Palladium Group, Inc.
to mind. They include establishing a crossfunctional team that brings together the right balance of skills and competencies; creating detailed user “personas”;
under their belt—have believed that the right process and culture must be in place first before an organization can even consider automation. Has anything changed that would alter this belief?
Publishers
identifying software, hardware, and
Buytendijk: Both approaches are equally
Robert L. Howie Jr. Managing Director, Palladium Group, Inc.
network requirements (how many users,
bad, and have been for many years. If
how many will be accessing the applica-
you create your strategy management
tions or functions concurrently, and so
processes first, you’ll find that you have
Joshua Macht Group Publisher, Harvard Business Review Group
forth); implementing rapid prototypes to
designed many things that don’t fit in cur-
test acceptance of the technology and
rent systems or that are technologically
identify gaps; and identifying the groups
not even feasible. If you automate first,
Executive Editor
most receptive to change (and most
you will most likely focus on what is avail-
Randall H. Russell VP/Director of Research, Palladium Group, Inc.
capable of constructive feedback) for the
able instead of what is really important
initial deployment before cascading the
to have. This is simply not an either-or
technology to broader user groups. In ad-
choice. You need to do both at the same
Editor
dition, the organization should focus on
time, using an “ice skating” approach. Ice
Janice Koch Palladium Group, Inc.
data quality and metadata management.
skating is a strange process. You swing
It should be able to demonstrate a return
one leg to the left, then you swing the
Copyright © 2011 by Harvard Business School Publishing Corporation. Quotation is not permitted.
on investment—or at least be able to pro-
other leg to the right, and the result is
vide anecdotal evidence that it has been
that you go forward quite quickly. Strat-
able to make better decisions faster as a
egy management should be implemented
result of the implementation. The quality
in the same way. You design a piece of a
of user training and support is crucial.
process and use your enterprise perfor-
Finally, you shouldn’t wait for perfection
mance management system to automate
(or for all data to be available).
it. That will lead to feedback about what
Material may not be reproduced in whole or in part in any form whatsoever without permission from the publisher. Harvard Business Publishing is a not-forprofit, wholly owned subsidiary of Harvard University. The mission of Harvard Business Publishing is to improve the practice of management and its impact on a changing world. We collaborate to create products and services in the media that best serve our customers—individuals and organizations that believe in the power of ideas. Palladium Group, Inc. is the global leader in strategy execution consulting. Our strategy, performance management, and business intelligence solutions deliver breakthrough performance for our clients. Our services include consulting, technology, conferences, communities, and certification. The Palladium Balanced Scorecard Hall of Fame for Executing Strategy® recognizes organizations that have achieved an outstanding execution premium. For more information, visit www.thepalladiumgroup.com or call 781.259.3737.
is easy and what is hard. Then, to tackle
In my experience, organizations that
a short-term problem, for instance, you’d
failed did the opposite of one or more of these factors. There are other failure points, however. One is attempting
use the possibilities of the system to quickly automate something, which gives you some inkling of what a modern
to scale out homegrown solutions.
process could look like. By the time you’re
Maintenance and adding capability to
ready to deal with the next iteration,
homegrown solutions typically adds
you’ve already learned something about
complexity while introducing risk and additional costs. Other organizations go wrong when they attempt to track too many metrics; instead of picking the few that count, they choose those that were readily available, invariably including too many for users to focus on or understand. And trying to do too much too soon—
the technology and about the process. You can immediately apply those lessons. In this way, you can deliver results every six weeks or so, immediately use emerging insights, and revisit previous steps quickly when necessary without a huge impact on the overall program.
setting overly aggressive targets, linking
Hornby: As for having the right culture
compensation to results, or cascading
and processes in place first: yes and
to individual scorecards during the first
no. What’s most important is ensuring
rollout—is another point that trips up
that the strategy is simple enough for
organizations.
people to understand and relate to. There
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must be consensus, at least among the
Technology can help, but it’s caveat
Indeed, the way in which you introduce
executive team. Strategy practitioners
emptor; technology is an enabler, and can
strategy management processes along
must have a solid understanding of the
rarely replace the wisdom and skill of an
with supporting technology also depends
Execution Premium Process (XPP) before
expert (and you need both). Technology
on whether you have a tradition of
attempting to automate their manage-
typically improves efficiency and ac-
measuring and quantifying performance.
ment processes, and they must have the
curacy. But technology can’t read minds;
Because if people are used to such a
respect and trust of the executive team.
it can’t sense tension or pushback among
tradition, the initiative won’t be perceived
Without it, the organization runs the risk
employees. You need technology and
as threatening. And let’s be honest: most
of automating bad practices or executing
wisdom.
performance management initiatives
a flawed strategy from the get-go.
BSR: Does the answer to that question
That said, if you are using software
depend on the industry? Or its rate of
designed specifically for implementing
change, or on technology dependence,
a Balanced Scorecard, the software can
or workforce tech savvy? Does it depend
typically be used to help articulate that
on having a tradition of measuring and
strategy, document it, and build consen-
quantifying performance results in place?
sus. For example, within SAS strategy management, a strategy practitioner could diagrammatically design a strategy
Buytendijk: If you use the ice skating approach while you are working on strategy
don’t fail because of technology, or lack of maturity, or lack of money, or lack of anything organizational. They fail because they are seen as a threat. This, of course, is something you can’t admit to, so that is why something else gets always gets blamed. Hornby: It’s different for every organization. Some industries are more prone to
management, you are also building a
leveraging technology than others, but
tradition while going through the project
it’s not a blanket pass for everyone in
phases. I don’t think it depends much on
that industry. Banks will typically adopt
the industry; I think it is more a result of
technology faster because they see the
organizational maturity and experience.
economic advantage and have specialist
ize, debate, and agree upon strategy
I would suggest that the greater the rate
groups or competency centers available
and objectives. It can all be done in real
of external change (whether industry,
to help.
time—you can project the diagram
political, economic, social, technological,
It’s more a matter of size and experience.
onto a large conference-room screen for
environmental, or legal), the better
If you have a strong track record for
everyone to see—and you don’t need to
an organization is at getting strategy
deploying technology successfully, the
be especially tech savvy to do it. Behind
management right—simply because there
odds are you will automate faster. But
the scenes, the software creates all the
is no alternative but to manage your strat-
the key, as I’ve said, is having people with
tables, relationships, and rules that will
egy in an agile way, reevaluating options
strong XPP skills and experience. The
drive the cascade later on.
all the time. If there is no time to develop
reality is that you could implement on
(let alone roll out) three-to five-year
time, on budget—and still fail. If your
strategic plans, you need to make strategy
strategic thinking is flawed, or if you
management a continuous process.
haven’t built acceptance along the way,
map by drawing objectives on-screen, adding metrics and themes, and then connect them via the drag and drop of a mouse cursor. This becomes a “shell,” or picture, executives can use to visual-
Think of it as rapid prototyping. The prototype can then be shown to users for feedback, to build acceptance, and to identify areas for improvement. Start
Workforce tech savviness is important,
small, follow a path, prove what works,
too. Let’s face it—technology drives
gain acceptance—and then connect data
business innovation. Every company that
to the shell and begin your rollout and
is not tech savvy is already putting itself
automation proper. This approach im-
behind the curve. Tech-savvy people don’t
proves your ability to move from theory
suggest simply redoing the old report;
to design to rollout, and takes the least
they look to technology to do things bet-
amount of time.
ter than before. Tech-savvy people don’t
Whether you are talking about a Balanced Scorecard or any other change initiative, the key to success is delivering multiple short-term wins—the earlier the better. Each success builds the confidence people need to move to the next step.
simply state their requirements and wait for them to be translated into a system;
you run the risk of automating your way to bad outcomes that much faster. Frank Buytendijk, chief marketing officer at BeInformed, is the author of Dealing with Dilemmas (Wiley, 2010) and Performance Leadership (McGraw-Hill, 2008). Jonathan Hornby is director of worldwide marketing for the SAS Institute. He is the author of Radical Action for Radical Times: Expert Advice for Creating Business Opportunity in Good or Bad Economic Times (SAS Press, 2009).
they take an active part in shaping the
Continue the dialogue
system. Tech-savvy people even have a
How has your organization approached the technology vs. process question? Share your views with Buytendijk and Hornby at www.thepalladiumgroup.com/bsr/ TechnologyChoice.
different culture and behavior, as modern technology is all about sharing and collaboration.
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