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Balanced Scorecard Report the strategy execution source

j u ly – a u gu s t 2 0 1 0 : vol 12 no 4

A Platform for Strategy Management By David P. Norton, Director and Founder, Palladium Group, Inc. Systems consist of people, structures, technologies, and processes that work together to make organizations viable. Systems thinking, a part of operations research, essentially looks at the whole as a basis for understanding, designing, and managing its component parts. Used in organizational management for decades, it has usually been applied only to operations. If strategy management is a system, as David Norton asserts, why not apply systems thinking to it as well? Over the past two decades, Robert Kaplan and I have pursued the development of management approaches to help organizations execute their strategies more effectively. The need has been clear: research studies in the mid-1990s indicated that 80% to 90% of organizations failed to execute their strategies. One survey revealed that the typical management team spent less than one hour each month discussing strategy, and that less than 5% of the typical workforce understood its organization’s strategy. In recent years, strategy management as a discipline has become decidedly professionalized. A 2006 Palladium survey showed that 54% of organizations reported having a formal management process for executing strategy. Of those organizations, 70% claimed to outperform their peer group.1 Similarly, a more recent survey by IDC found that 75% of organizations that rate themselves as most competitive in their industry use a formal performance management methodology. The IDC report further stressed the importance of a formal performance management methodology such as the Balanced Scorecard (BSC) in creating a systems perspective: “The cross-domain nature of this methodology [the BSC] forces an organization looking to automate some aspects of the Balanced Scorecard to ensure that all its domains or subject areas are represented in the business intelligence solution.”2 Indeed, the Balanced Scorecard provides a foundation for a systems approach to strategy management. Yet despite the progress we’ve observed, several longstanding and potentially immovable barriers persist: the many types of silos in an organization. The antithesis of the systems approach, they are the result of decades of evolution in which different frameworks, approaches, and technologies have been introduced without any master plan. Today, they constitute a veritable Tower of Babel that frustrates integration and communication. These barriers include:

also in this issue: Mirror, Mirror: How to Enhance the Execution Premium Process with Competitive Intelligence . . . . . . . . . . . . . . . . . . . 7 Strategy Execution in the Pharmaceutical and Life Sciences Industries . . . . . . . . . . . . . 10 Unify Your Far-Flung Workforce Around Your Strategy . . . . . . . . . . . . . . . . . . . . . 14

new! Strategy Execution Champions: The Palladium Balanced Scorecard Hall of Fame Report 2010. The latest edition of the Hall of Fame Report profiles the 13 members of the Hall of Fame class of 2009. For details and to order, visit www.bsrhof.org or call 800.668.6705 (+1.617.783.7474 outside the U.S.).

also available BSR Index 1999–2009, a compendium of the more than 325 articles published in Balanced Scorecard Report since its inception. Download it—free—at www.index09.hbr.org.

subscriptions, back issues, and reprints To subscribe to Balanced Scorecard Report, call 800.668.6705; outside the U.S., +1.617.783.7474. Or visit web.hbr.org/ ep/subscribe.html. Group subscription rates are also available. To order back issues or article reprints, visit www.executionpremium.org.

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1 An online survey of approximately 150 performance management professionals, members of BSC Online, March 2006. 2 D. Vesset and B. McDonough, Improving Organizational Decision-Making Through Pervasive Business Intelligence, IDC, March 2009.

(1) The strategy framework barrier, in which the organization has no master plan for strategy. Strategic approaches proliferate and vary from executive to executive. Management can’t agree on the distinction between vision and mission, let alone the roles of customers, products, employees, and shareholders. (2) The management process barrier. Organizations that lack a formal strategy management process also tend not to integrate their budgets, HR priorities, or IT plans with their strategies. Strategy management is little more than a set of loosely coupled functional processes.

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The Strategy Model Build around a widely accepted framework that describes an organization’s strategy (the Strategy Map)

2 Translate the Strategy

3 People and Organization Build a cadre of certified professionals who will provide the knowledge and leadership to execute the new system (K/N Certification)

1 Develop the Strategy

3 Align the Organization

6 Test and Adapt

Palladium Execution Premium Process 5 Monitor and Learn

4 Plan Operations

4 Technology and Analytics Create a platform of technology that mirrors the management process

Execution Process Initiative

(3) The technology barrier. Most organizations’ technology platforms have evolved over time, creating a patchwork of programs that are difficult to integrate. Compounding the challenges of integration, technology vendors tend to build their own management models instead of adopting ones that are generally accepted in the market. (4) The people barrier. Most management professionals are specialists who have been educated and trained in functional disciplines such as finance, HR, IT, and marketing. In general, they have a limited understanding of the issues beyond their discipline. Yet successful strategy management requires a cross-business perspective—a systems perspective. So how do organizations remove these barriers?

A Platform That Integrates A classic example of the problems caused by fragmentation was the barriers to growth faced by the infant computer industry in the 1980s. With the cost of computers plummeting, the personal computer (PC) emerged as a technology that could change the world. Manufacturers such as IBM, Apple, and Compaq rose to the challenge. The new software industry emerged, producing applications such as word processors, spreadsheets, and graphics software. Each manufacturer attempted to differentiate itself with a unique product architecture

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Build the platform around a widely used process that will create stability (the Palladium Execution Premium Process)

FIGURE 1: THE STRATEGY MANAGEMENT PLATFORM The four-part strategy management platform represents a systems approach to strategy management that overcomes the barriers to integration. that locked the customer into a singlevendor environment. Eventually this fragmentation stalled innovation and threatened the growth of the PC hardware and software markets. In 1990, upstart Microsoft introduced its breakthrough operating system, Windows 3.0. This software achieved rapid commercial success, selling two million copies in the first six months.3 Microsoft introduced its own suite of integrated applications, Microsoft Office, along with a built-in Internet browser. The relatively stable Windows software platform, along with the market share the company rapidly gained, allowed developers across the industry to break through the barriers of fragmentation. The development of a strategy management discipline faces a similar set of barriers. Strategy management also needs a platform to break through the unique growth barriers it faces. The platform, shown in Figure 1, has four components: (1) the Strategy Model, which standardizes the conventions by

3 http://wikipedia.org/wiki/Microsoft_windows (accessed 4/16/10).

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which we describe organization strategy; (2) the Process Model, which standardizes the basic processes and methodologies (e.g., develop strategy, align the organization) used to manage strategy; (3) People and Organization, which creates a cadre of professionals trained and certified in the discipline of strategy management; and (4) Technology and Analytics, which links a set of IT applications to the strategy process model to accelerate decision making and insight.

The Strategy Model Description is the first level of science. If you can’t describe a phenomenon, you can’t measure it—and if you can’t measure it, you can’t manage it. Descriptive frameworks are used in all forms of organized endeavor, from income statements and balance sheets in finance to the Dewey Decimal System in libraries; from industry classification for macroeconomics to the census framework for demographics. Such frameworks establish a language, definitions, and conventions that allow a common treatment across

Shareholder Value

Time-Based ABC

BCG Growth Share

Financial Perspective Blue Ocean

5-Forces Value Chain

Customer Perspective • Lean Manufacturing • Six Sigma

Process Perspective

• COSO • Risk Management

Learning & Growth Perspective

• Ideation • Open Innovation

Reengineering

• Social Responsibility • Green

IT Portfolio

Human Capital Readiness

FIGURE 2: THE STRATEGY MAP AS A HOLISTIC FRAMEWORK Many different strategy approaches can be integrated into the strategy management framework. organizations, geographies, and cultures. A descriptive framework is a necessary foundation for the systems approach. When we first developed the Balanced Scorecard in 1990, our goal was to provide a framework to measure the effectiveness of an organization’s strategy. At the time, there was no generally accepted way to describe a strategy. We were particularly struck by the complete lack of consensus within most management teams on what their strategy was. Our efforts to address this problem produced the strategy map (introduced in a 2000 Harvard Business Review article and discussed in our 2004 book, Strategy Maps), which describes the logic of how the organization creates value for its stakeholders. The strategy map creates a set of hypotheses that establishes causeand-effect logic between the drivers of performance (e.g., elements defined in

the learning and growth perspective) and the outcomes (those defined in the financial perspective). In other words, it describes the organization’s strategy. The strategy map has two characteristics that make it an ideal standardized framework. First, it is holistic: it works comfortably with many strategy approaches. For example, as Figure 2 shows, Shareholder Value fits naturally in the financial perspective, and Blue Ocean fits naturally within the customer perspective. However, the strategy map is more than a simple classification scheme. Through its cause-and-effect linkages it shows the impact of these various strategic approaches on the desired strategic outcomes. The strategy map thus provides a logical and effective foundation for the Strategy Management Platform. Second, the strategy map is widely used. Since we began developing strategy

maps for our clients in the 1990s, they have been applied in thousands of settings in every conceivable industry and sector (even entire nations) in nearly every continent. A 2008 survey found that 62% of organizations used the BSC and strategy maps as the organizing framework for their strategy management system, whereas only 13% relied on Total Quality Management and 3% on Shareholder Value.4 Clearly the BSC and strategy maps are the most widely used strategy management framework.

The Process Model To successfully execute strategy, organizations need a management process to translate the strategy described by the strategy map into action. Our continuing research into the formal approaches used by successful organizations led us to develop a six-stage management process, described in our latest book, The Execution Premium.5 Each of the six stages consists of a set of management best practices that have demonstrated results. (See Figure 3, next page.) Stage 1: Develop the Strategy. Strategy must be periodically reviewed and updated. The typical strategy “cycle” lasts three to five years, and is based on a clear statement and quantification of the vision.6 Stretch targets become the foundation of the strategy. The strategy map’s architecture should be established as early as possible in the planning process to allow the organization to introduce strategy planning approaches (shown in Figure 2) without straying from the strategy model. Stage 2: Translate the Strategy. The strategy is translated from general themes into specific objectives, measures, targets, initiatives, and budgets. Tools such as strategy maps, BSCs, and StratEx (the dedicated allocation of strategic expenditures) enable organizations to link the details of planning to the

4 R. Lawson, T. Hatch, and D. Desroches, Scorecard Best Practices: Design, Implementation, and Evaluation (John Wiley & Sons, 2008). 5R  . S. Kaplan and D. P. Norton, The Execution Premium: Linking Strategy to Operations for Competitive Advantage (Harvard Business Press, 2008): 4–6. The six-stage process was also described in Kaplan and Norton, “Integrating Strategy Planning and Operational Execution: A Six-Stage System,” BSR May–June 2008 (Reprint #B0805A). 6 Quantifying the vision refers to including a measurable outcome and targeted value in the organization’s value statement—something the author considers essential. See R. S. Kaplan, D. P. Norton, and E. Barrows Jr., “Developing the Strategy: Vision, Value Gaps, and Analysis,” BSR January-February 2008 (Reprint #B0108A).

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generalities of strategy. Measurement provides the bridge from strategy to action. Stage 3: Align the Organization. Alignment is the way results are achieved. Communicating the strategy to the workforce, and translating the strategy into personal and departmental goals is an important precondition for success. Because most organizations lack a formal process for building alignment, they never experience its benefits. Initial alignment efforts should be focused on top-down linkages from the enterprise level to business units to employees. Many companies are now using strategy maps and scorecards to create alignment with customers, suppliers, and alliance partners. Stage 4: Plan Operations. Linking strategy to operations represents the area of greatest progress within the KaplanNorton methodology in recent years. Alignment’s benefits, derived from focus, are typically one-time. Superior performance from alignment is not sustainable unless strategic objectives ultimately trigger changes in underlying operational processes. For example, the strategic objective “Reduce the product development cycle by 50%” cannot be achieved until someone figures out how to reengineer the product development process. Techniques like driver modeling and KPI dashboarding complement the traditional approaches to innovation by signaling improvement opportunities. Improvements due to operational changes are structural and, hence, sustainable. Stage 5: Monitor and Learn. A strategy is a hypothesis about the actions needed to create desired results. To be effective, the strategy must be evaluated against actual experience. We’ve observed how important it is to separate strategy reviews from operations reviews (otherwise, short-term concerns will preempt the long-term issues on the review agenda). The key to success here was articulated several years ago by Disney’s then-CEO, Michael Eisner, who recommended

2 Translate the Strategy

1 Develop the Strategy

Design strategy map with linked strategic objectives

Affirm mission and values; quantify the vision

Define measures and targets

Perform strategic analysis

Prioritize strategic initiatives

Formulate strategy

Authorize and protect strategy funding

Align business units to corporate strategic priorities

3 Align the Organization

Align support units Communicate strategy 4 Plan Operations

4 Plan Operations

1 Develop the Strategy

2 Translate the Strategy

3 Align the Organization

6 Test and Adapt

Palladium Execution Premium Process

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Use decision analytic models

5 Monitor and Learn

Process

Conduct operational review meetings

Initiative

Integrate financial planning and resource capacity planning with the strategy

Conduct strategy review meetings Manage initiatives

Use process models

Review risk management plans, processes

Create operational dashboards

FIGURE 3: THE PROCESS MODEL This figure shows selected best practices (from among about 50 total best practices) for each of the six XPP stages. simply, “Call meetings about subjects that really matter and show up.”7 The BSC provides an agenda of “subjects that matter.” Stage 6: Test and Adapt. Prompted by the recent growth in business intelligence and analytics, organizations are increasingly adopting quantitative approaches in their strategic thinking.8 This represents not merely newer ground, but a particular opportunity for Balanced Scorecard users who have embraced the six-stage process. The strategic analysis performed in Stages 1 and 2 yields a hypothesis of cause-and-effect relationships. These relationships are converted into measures that are further deconstructed (Stage 4) and reviewed (Stage 5) monthly or quarterly. This performance data can be used to test the strategy hypothesis through insight-generating analytic approaches. Often, such insights trigger strategy revisions that yield significant benefits. Based on these organizations’ experiences, we believe that each year, as a prelude to the strategy update cycle, organizations should conduct statistical analyses of their strategy hypotheses (i.e., the strategy and its

component themes), and incorporate the results into their updated strategic plans. The six-stage model shown in Figure 3 provides a logical framework for building and sustaining a new management process. Organizations’ experience with reengineering in the 1990s showed the value of developing detailed models for supply chain management, customer management, product development, and other processes. Strategy management, too, is a process. With so many confusing and redundant approaches in use, the strategy management process model, when linked to the Strategy Model (Figure 2), provides a robust, holistic framework.

Integrating People, Methods, and Technology In 1799, a French Army engineer working near the Egyptian city of Rosetta discovered an artifact covered with ancient writing. The writing turned out to be multilingual scripts that allowed scientists to translate Egyptian hieroglyphics into various contemporary languages. Although not as profound in its impact, the strategy management process model serves as a kind of Rosetta Stone for

8 T. Davenport and J. Harris, Competing on Analytics: The New Science of Winning (Harvard Business Press, 2007). b a l a n c e d

Test robustness of the strategy

5 Monitor and Learn

Execution

Set priorities for strategic processes

7 M.D. Eisner, “Letter From the Chairman,” The Walt Disney Annual Report, 1995.

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Test the strategy’s cause-andeffect relationships

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strategy management by establishing a framework and language that allows tools, competencies, and technologies to be integrated into one process. The six-stage Palladium Execution Premium Process is a core component of the larger Strategy Management Platform, whose other components include a strategy model (strategy map), people and organization (competencies), and supporting technologies. The platform creates an architecture for integrating and coordinating the activities that constitute these four components. The platform also includes the development of methodologies and tools to support the execution of each of the six management stages.

People and Organization Strategy management is a new process. It is also holistic and multidisciplinary. The competencies it requires do not exist in most organizations and must be developed. Inspired by similar developments in the Six Sigma movement, we and our colleagues at Palladium Group have been developing professional certification for strategy management, with the goal of developing black belts (execution leaders) and green belts (users of the new process). The curriculum for certification is being derived from the best practices of the six stages. (See Figure 3 for representative best practices.) Initially, certification will be developed for individuals, but should eventually apply to organizations as well. Certifying professionals is a way of ensuring that the knowledge base needed to build a sustainable competency exists. An Office of Strategy Management (OSM) plays an important role in this competency building. Already hundreds of organizations have established an OSM. Because the OSM is responsible for managing the overall strategy management process, it should also be responsible for developing the necessary competencies. The process model provides the basis for such a curriculum.

Technology and Analytics A recent survey conducted by Randall Russell, director of research at Palladium Group, showed that an organization’s strategy management capability grows over time. Russell noted a strong correlation between superior performance and the use of data analytics (DA) and the BSC. Specifically, he found that 78% of companies that had used both DA and the BSC achieved breakthrough results. If the two tools were used for less than three years, however, only 35% of companies achieved breakthrough results.9 This research corroborates what we have observed in practice: technology must follow process. When introducing a new way of managing, such as that required by the strategy management process, executives must undergo a period of learning and adjustment. New concepts (such as strategy maps), new techniques (e.g., StratEx), new tools (e.g., BSCs), and new approaches to managing (e.g., alignment) must be internalized. Most important, executives must learn to work as a team, breaking down organizational silos to focus on strategy. Unlike supply chain management or capacity planning, strategy management is not a highly structured process. Rather, it’s a loosely designed set of activities held together by common frameworks and philosophies. For all these reasons, a new strategy management process must be

The Strategy Management Process model (Figure 3) provides a road map for introducing technology-enabled approaches. Each of the six stages of the management process has a unique structure that demands a unique technology approach. There are four distinct opportunities for using technology. 1. The Balanced Scorecard (Stages 2 and 5). The development of BSCs and the associated reporting process are the first important application of technology in the strategy management process. Most performance software suites feature BSC modules. Some providers, however, are obsessed with drill-down capability, which adds an unwarranted degree of complexity in the early stages of implementation. We know a number of companies that scrapped their BSC application because it interfered with the management process. Some of these companies reintroduced the very same software 12 to 18 months later, with positive results. Early on, we recommend a simple spreadsheet solution that stresses the scorecard’s link to strategy maps and the cause-and-effect logic. (Links to initiatives and the ability to monitor them are also critical.) The scorecard application you ultimately select should facilitate executive meetings, recording decisions, and follow-up actions. How structured the technology is depends on how structured the process it is meant to support.

This research corroborates what we have observed in practice: technology must follow process. When introducing a new way of managing, executives must first undergo a period of learning and adjustment. introduced in a low-tech environment that facilitates executive learning and experimentation. If a complex, highstructure technology (one that offers little room for adaptation) is introduced too early, it will almost always fail. The maturity of the technology approach must match the maturity of the management process. Technology must follow process.

2. Operational Analytics (Stage 4). Linking strategy to operations offers the greatest potential payoff for early adoption of technology. The process perspective of the strategy map identifies a number of process improvement objectives. But how do you achieve them? Analytic techniques like driverbased modeling, best-practice identification, and Six Sigma can have a major

9 Randall Russell, Link Strategy and Operations to Achieve Strategy Execution Excellence, Palladium Group, 2009.

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impact on issues of strategic importance. Operational dashboards should be used to maintain strategic focus and foster continuous improvement. 3. Strategy Analytics (Stages 1 and 6). The logic of a strategy map defines several strategic hypotheses: a set of cause-andeffect relationships that describe how the strategy will create value. These hypotheses should be tested periodically—at the very least, annually—as part of the strategy refresh. The use of statistical techniques like factor analysis10 has enabled organizations such as TD Bank, Canadian Blood Services, and Cardinal Health to gain new performance insights, prompting modifications in their strategies that enhanced their results. These three organizations designed statistical experiments to identify employee behaviors that increased customer satisfaction.11 The strategy itself suggests where these tools can best be deployed to yield the greatest return. 4. Alignment (Stage 3). Alignment represents the greatest potential source of value in implementing strategy. Yet it is the area of lowest technology use. Alignment is essentially about continuously educating the organization about the strategy and ensuring that goals at all levels are in sync. Portals help by allowing communications and educational material to be constantly updated. Communities of interest can also be established and facilitated through forums, blogs, bulletin boards, and so forth. New generations of technology offer many ways to foster alignment nd thus unlock greater value. The process model can help guide you in formulating a supporting technology strategy. Each stage of the model has a unique underlying structure and thus requires a unique kind of technology support. The sophistication of the technology should match the maturity of the management process.

Methodologies and Tools Let’s not forget: the purpose of a strategy management process is to activate specific change in the organization. A strategy defines the agenda for change by identifying the relevant objectives, measures, targets, initiatives, and funding. Managing strategy execution is all about managing change. The many activities that constitute strategy management require methodologies and tools to support their execution. These methodologies must be selected with the change management objective in mind. For example, a standard change management objective for Stage 3 (Align the Organization) is to “Promote crossbusiness teamwork by breaking down silos.” Methodologies that support this objective include cascading strategy maps to business units, establishing theme teams, instituting service level agreements, and building support unit strategy maps. Many other methodologies might facilitate alignment, but it is those supporting the change management objectives that are the most

Today, most people still don’t see the need for a formal process for managing strategy. But that view is a direct result of the fragmented infrastructure that exists in most organizations: the lack of a strategy framework, inconsistent management processes, islands of technology that have evolved organically, and the absence of cross-business competencies. We believe that a different way of thinking is required: a return to the systems approach. By creating a standardized platform that contains the strategy model along with the strategy management process model—a Rosetta Stone for strategy management—organizations will be able to overcome their fragmentation and develop the methodologies, technologies, and competencies needed to sustain breakthrough performance—regardless of changes in leadership. 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.”

valuable.

A Rosetta Stone for Strategy Management More and more organizations are concluding that an effective performance management process is essential to their success. The more than 135 member organizations of the Palladium Balanced Scorecard Hall of Fame further validate this conclusion. While the results of Hall of Fame organizations are dramatic, the question remains: Can they be sustained? The use of the many management approaches described here is still dependent on the chief executive who advocates their use. Often, when the CEO leaves, the strategy management process he created leaves with him. This, we believe, is a mistake. Strategy should be the domain of the executive office; it should transcend the individual. The strategy management process should be a part of the organization’s infrastructure.

To learn more Investigate the works of Jay Forrester, a computer engineer, scientist, and former professor at the MIT Sloan School of Management, who is considered the founder of system dynamics. Among his many books and articles are “Industrial Dynamics—A Major Breakthrough for Decision Makers,” Harvard Business Review, Vol. 36, No. 4, pp 37-66; and “System Dynamics: The Foundation Under System Thinking” (MIT, June 8, 1999).

More from the author See a video interview with David Norton at: www.thepalladiumgroup.com/bsr/ NortonVideo. Reprint #B1007A

10 Factor analysis is a statistical method used to test relationships between variables and identify which factors are responsible for correlations. 11 S  ee D. Campbell, “Choose the Right Measures, Drive the Right Strategy,” BSR May–June 2006 (Reprint #B0605D). Campbell describes how TD Bank of Canada overhauled its customer satisfaction metrics using statistical analysis. 6

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Mirror, Mirror: How to Enhance the Execution Premium Process with Competitive Intelligence By Leonard Fuld, Founder and President, and Mark Chodnowsky, Vice President, Fuld & Company In the July–August 2008 BSR, Frigo and Barrows introduced the idea of using strategy mapping for competitor analysis. Just as your strategy map provides a high-level view of your strategy, initiatives, and operational processes, your competitor’s strategy map reveals a holistic view of its strategy and how it is organized to achieve it. Fuld and Chodnowsky, leading experts in competitive intelligence, take the concept one step further: they propose that the entire Kaplan-Norton Execution Premium Process (XPP) framework can be used to analyze any competitor’s strategy in a holistic way. Creating a “mirror image XPP” for your competitors will yield rich insights to help your organization sharpen its strategy and compete more effectively over the long term.

released iPad. Amazon wants to maintain its preeminence in electronic books. Its product has a black-and-white, paper-like screen and buttons for downloading and turning pages. Apple’s iPad, with a color screen and touch screen commands, can also download music, videos, and Internet content.

1. External Analysis at the Strategic Level: The 30,000-foot View Before focusing on a competitor’s plans and activities, Amazon, like any other organization, must first conduct external analysis (XPP stage 1, strategy development) to gain vital strategic information and a more far-reaching picture of the competitive horizon. Various tools are available to help formulate and adjust the strategy, each filtering different types and levels of information about the market and the company’s place in it. Through scenario, or PESTEL (political,

Although much of our firm’s competitive

1, next page.) By overlaying your plans

economic, social, technological, environ-

intelligence work focuses on operational

on the competitor’s assumed plans, you

mental, and legal), analysis, you can study

benchmarking to help clients compare

can highlight the differences between

a market landscape five to 10 years in the

their operational performance to that

the two organizations. Would you like to

future. For example, in 2000, Amazon’s

of competitors, our findings are often

deduce your rival’s strategic themes and

PESTEL analysis might have signaled

predictive of the competitor’s strategic

initiatives and their corresponding fund-

demand for a portable electronic reader

goals and initiatives. For instance, one

ing? Or how the competitor’s underlying

that could also download books. This

benchmarking study we performed for

operations and processes (e.g., market-

kind of future market picture will influ-

a medical supply client revealed that

ing, R&D) differ from your organization’s?

ence the direction your competitors

several of its competitors had essentially outsourced shipping and warehousing to third-party logistics firms, allowing them to provide same-day delivery to drugstores—a key market differentiator.

As the late journalist Sidney J. Harris once noted, “The whole purpose of education”—we’d say “intelligence”—“is to turn mirrors into windows.”

Our client recognized that it could not match the competition’s performance,

Juxtapose the strategic planning outputs

take today. PESTEL forces are, of course,

despite owning one of the industry’s larg-

(XPP stages 1 and 2) and the operational

always at work, allowing new rivals to

est distribution networks.

plans (stages 3 and 4) against a competi-

enter your market and the more nimble

tor’s XPP, and you have a mechanism for

ones to quickly adapt to change. Ama-

robust competitor analysis.

zon’s management might ponder the

strategy map’s ability to link strategy

The XPP framework offers four oppor-

publishing market altogether and how

and operations can be exploited to gain

tunities to examine competitive and

people will need or want to use informa-

intelligence on competitors. You start by

market activity on both the strategic

tion. Amazon must try to anticipate this

creating a competitor strategy map—a

and operational levels. To illustrate, we’ll

future, as its competitors surely will.

mirror of your organization’s map—and

compare two very different companies

To gauge near-term market threats

proceed through the XPP to capture a co-

apparently competing for the same

(those one to two years out), Porter’s

herent picture of the drivers, goals, and

market: Amazon, with its front-running

five forces model1 provides the means to

activities of your competitors. (See Figure

Kindle, and Apple, with its recently

examine customer and supplier pres-

This kind of insight is just the tip of the competitive intelligence iceberg. The

1F  ive forces, developed by Michael Porter, is described in his book Competitive Strategy: Techniques for Analyzing Industries and Competitors (Free Press, 1980). j u l y – a u g u s t

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2. External Analysis at the Operational Benchmarking Level

Market analysis Scenario planning War games Competitor intelligence

At the operational level, the view can get confusing. Dozens of tools are Knowledge management

Operational benchmarking Competitor strategy mapping

Internal intelligence networks

Financial forensics

Early warning systems

available for learning about the operational aspects of a competitor’s strategy, including value chain and supply chain benchmarking, win-loss analysis, customer acquisition tactics studies, technology scouting, and HR benchmarking. In fact, it’s easy to be overwhelmed by the endless stream of available information. You

FIGURE 1: CREATE A MIRROR IMAGE XPP Juxtaposing your strategic planning outputs and operational plans against a competitor’s XPP produces robust competitor analysis. sures, imminent substitutes, and current

What are its financial and market goals?

rivals. At this level of analysis, Amazon

Does it have different assumptions about

needs to know which companies other

customers and trends? Does it have many

than Apple have chosen to compete on

funded initiatives?

its turf. Will they be suppliers or publishers? Will the Nokias of the world, seeing their handset revenue threatened, apply their core competencies to producing a Kindle-killer? To analyze and anticipate a competitor’s strategic plans, a company can use such tools as war games and the four corners model.

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An ocean of published information, from stock analysts’ reports to articles, offers answers. From interviews with Steve Jobs and his lieutenants, Amazon could deduce Apple’s drivers. These same information sources often publish a management’s views of its company and assumptions about the market. Annual

must become selective in the questions you ask, narrowing them to specific targets that will reflect strategic objectives and, in the aggregate, provide a clearer picture of the competitor’s strategy and supporting operations (stage 4, Plan Operations). Underpinning the XPP framework is the Balanced Scorecard, with its associated strategic measures. Having already hypothesized your competitor’s strategy map and extrapolated its strategic themes and objectives, you can now zero in on the key performance indicators (KPIs) underlying the strategic objectives. An important goal of external bench-

Building a Mirror Strategy Map

SEC 10-K filings (including the footnotes)

Developing external analysis of a com-

reveal a company’s infrastructure, ability

petitor generally requires in-depth ex-

to generate adequate cash flow, and

ternal research in specific critical areas.

plant or service capacity, among other

Amazon might examine Apple’s innova-

details. Companies, Apple included,

tions in user interfaces, or monitor how

often attempt to obscure such details,

Amazon’s KPI for product innovation

Apple’s phones have begun to set certain

but there are always data proxies, such

might have been “volume of book

functionality standards, in the process

as information on iPad shipments or ad-

downloads.” By examining Apple’s “book

changing attitudes from the content or

vertising expenditures. Even at this high

downloads” KPI, Amazon will discover

media providers that supply the “fuel”

level, marked differences will emerge

that Apple has taken an entirely different

for all e-readers. Such findings would

between the drivers, assumptions, cur-

view of its iPad-cum-iTunes platform:

inform Amazon how a competitor such

rent strategy, and capabilities of the two

that multimedia advertising sales, not

as Apple approaches the e-reader market

competitors.

just e-book sales, are more critical. Imag-

with a different set of assumptions,

A well-designed literature search should

motivations, and capabilities. From this

yield more than half the strategic infor-

information, a competitor strategy map

mation you seek, but we recommend

can be developed (XPP stage 2)—a more

interviewing market analysts, key sup-

granular analysis to refine the initial

pliers, and customers to corroborate and

strategy analysis.

update your research. You may require

As Amazon sets out to build a strat-

third-party help to gain access to sources

egy map for Apple, it might ask: How is

of more sensitive information.

Apple’s strategy different from ours?

marking is locating the critical areas that explain the differences between your company’s operations and a rival’s; KPIs signal those areas.

ine a simple graph with two sets of lines; one tracking Amazon’s and Apple’s book downloads, and the other, multimedia purchases. Apple’s likely inflection point for multimedia would spike early, indicating that Apple has a very different set of objectives. For argument’s sake, you can imagine that Amazon would demonstrate a growth in e-books, while Apple’s iPad would show revenue growth coming

2P  orter also created the four corners model, in which one examines a company’s future strategy based on four factors: drivers, assumptions, current strategy, and capabilities. The authors run war games based on this model. 8

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from music and video downloads. This

change. What about when market condi-

4. Monitoring for Operational Risks

benchmark assessment tells Amazon it

tions change? Monitoring the external

Similarly, operational risks need to be

must decide whether it should modify

environment is part and parcel of the

monitored. This can be done through

its strategy for Kindle somewhat—or

XPP, intended to give an early warning

established key risk indicators (KRIs)—

considerably—to compete with this

of strategic as well as operational risks.

metrics that indicate a threshold where

nimble new entrant.

This, however, doesn’t mean scanning the

the market or competitors can put you

entire market and every competitor or

and your product in jeopardy. A KRI for

new entrant; there isn’t enough time for

Amazon might be a new (and cheaper)

such an effort. Just as selected KPIs help

screen technology that delivers greater

focus operational benchmarking, triggers

clarity, multimedia capability, or lower

(or “trip wires”) can help you monitor

cost. Another might be locking up a key

risks. These risk indicators, it turns out,

screen technology partner to control

are also your KPIs, because they identify

the e-book market. Once these risks are

the strategy-critical actions.

identified, you can assess both your com-

By using the XPP framework to create a competitor strategy map and help focus your operational benchmarking, you can accomplish several critical intelligence goals. The strategy map identifies strategic objectives, which then help pinpoint the competitor’s strategycritical processes. These, in turn, indicate

pany’s and your competitors’ possible

the relevant operational benchmarks

At the macro (market) level, you may

to study. These KPIs can yield significant

have an early-warning system that tracks

insights about your competitor’s strat-

key drivers as identified by a scenario

egy. This information is more valuable

planning exercise (stage 6). For health-

than it first appears, because, as the

care companies wanting to expand in

The concepts discussed here offer a

Amazon/Apple example suggests, so-

China, the five forces model may be an

practical approach to incorporating

called competitors often have inherently

appropriate early-warning process be-

competitive and market intelligence

different business models. In addition,

cause of the macro view it provides of the

into the XPP. In the same way that your

actual values for a competitor’s process

key factors affecting competition. How-

strategy map can become the foundation

KPIs may reflect—or predict—the

ever, in any market, in any country, the

for the transparent execution of

competitor’s outperformance at the

five forces are never perfectly balanced;

strategy throughout your company, a

customer and financial levels.

invariably, one or two forces dominate.

competitor strategy map can serve as a

These become, in effect, strategic early-

mirror of the competitive landscape—

warning trip wires. In China, for example,

and a mechanism for assessing a rapidly

nearly all questions center around the

changing market. Business is all about

force of new entrants, because govern-

managing change. Let the XPP help you

ment plays a role in granting or denying

towards this goal.

Companies analyze their operational performance data to help them monitor progress toward strategic goals (stage 5), assessing it alongside their external environmental analysis. You can apply competitors’ operational benchmarking data in the same way. The data provides a feedback loop, offering insights on the competitive environment that may suggest the need to adjust your own tactics or strategy. You might then test the validity of your assessment with a war game. Finally, operational benchmarking conducted at the department or functional level can, through the use of the competitor strategy map, offer a more detailed, more contextual view of your competitor’s business processes and activities and how they interconnect.

responses through a war game exercise to guide you in adjusting your current strategy and operational plan.

market access to new entrants. Until 10

Leonard Fuld founded Fuld & Company, a leading international research and consulting firm specializing in business and competitive intelligence. His latest book is The Secret Language of Competitive Intelligence (Crown Publishing Group, 2006).

years ago, only hospitals were permitted to dispense drugs. So monitoring the opening of retail pharmacies might be an important trip wire for the healthcare market in China. For Amazon, the strategic early-warning trip wire might be new screen technolo-

Mark Chodnowsky leads the Industrial and Consumer Goods practice at Fuld & Company. He has 20 years’ experience in competitive intelligence and strategy consulting.

gies or new Internet media platforms. At the individual-competitor level, you can monitor a competitor’s strategic initiatives and how these are manifested in, say, initiative funding levels, positioning statements, or financial or market goals. Such information may find its way into

3. Monitoring for Strategic Risks

public filings or news reports on invest-

The strategy map is designed to be a

ments fed to wire services via press

living, breathing planning tool, modi-

releases or word on the street in the

fied as conditions within your company

venture capital or banking communities.

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To learn more See E. Barrows Jr., and M. Frigo, “Using the Strategy Map for Competitor Analysis,” BSR July–August 2008 (Reprint #B0807E). Reprint #B1007B

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Strategy Execution in the Pharmaceutical and Life Sciences Industries By Barnaby S. Donlon, Principal, Palladium Group, Inc. Pharmaceutical and life sciences companies face a multitude of challenges, from patent expirations and regulatory changes to pricing pressures and the need for new commercial approaches. A coherent strategy and disciplined execution are more important than ever. Here, Barnaby Donlon examines some of the strategies these companies are pursuing to excel in their mercilessly competitive marketplaces, showing how strategy maps and strategic themes, along with an Office of Strategy Management, are instrumental at every stage of strategy execution. In general, pharmaceutical and life sciences companies do three things: develop, produce, and commercialize (i.e., market and sell) medicines, their ingredients, or their means of delivery. These firms invent or develop new medicines that address unmet medical needs. They manufacture their goods as cost effectively as possible while meeting quality and safety standards. And they commercialize their products by securing access to regulated markets and through marketing and sales activities designed to educate external stakeholders—patients, healthcare providers, regulatory agencies, payors, and governments—on the benefits (and risks) associated with their therapies. Bringing a drug to market (from discovery and development to clinical trials and government approval) costs, on average, approximately $1 billion and takes anywhere from 7.5 to 11 years.1 Companies are therefore constantly seeking ways to reduce costs and accelerate their products’ time to market. Pharmaceutical companies in particular must be selective about how they choose to differentiate themselves and gain competitive advantage. While they typically focus on development, or R&D, because an attractive product pipeline

significantly enhances a company’s valuation, they must also focus on production, where the ability to manage quality and safety-related risks can save millions of dollars. Equally important are commercialization (because marketing and sales effectiveness leads to prescriptions) and networks (our term): partnerships and alliances through which companies can gain advantage by outsourcing noncore activities or accelerating market penetration. Let’s explore the strategic context and each of these themes in detail, using the generic strategy map shown in Figure 1 as our reference.

The Strategic Context: The Financial and Customer Perspectives As profit-seeking, mission-driven organizations, pharmaceutical and life sciences companies aim not only to maximize and sustain profitable growth, but also to enable reinvestment in R&D, which leads to saving or improving lives. This typically calls for growing revenues from new products while realizing the full potential of the existing product portfolio, including patent-protected and off-patent products. A third source of growth is geographic expansion, with a particular

emphasis on gaining market leadership in emerging markets, where growth rates are double-digit. And amid rising development costs and the threat of competition from generics, pharmaceutical and life sciences companies are constantly searching for new efficiencies. How efficiently and effectively a company allocates its scarce resources is a key determinant of profitability: Do you spend that extra dollar promoting an existing product or discovering a new molecule? Yet the most important strategy map perspective for these companies is external stakeholders. A typical company in the industry must serve at least four key customer segments: patients, healthcare providers, regulators, and payors. Patients and providers tend to want high-quality, life-enhancing products (although doctors also appreciate services that help them manage their practices better, such as online information resources). Regulators demand compliance and patient safety. And payors (whether governmental or private) expect exceptional value: a better individual, social, and economic costbenefit ratio than your competitors’.

Strategic Theme #1: Development Given the financial mandate for new product revenue and a customer mandate (i.e., value proposition) to bring high-quality, life-enhancing products to market, development is an important strategic theme for pharmaceutical and life sciences companies. The three common strategic capabilities (objectives) in this theme—Marketand Customer-Driven Innovation, New Growth Platforms/Product Portfolios, and R&D Productivity—are well described in the strategy map and BSC of the R&D function at Hospira. A Lake Forest, Ill.–based company with sales of $3.9 billion, Hospira produces generic injectables and drug-delivery devices.

1A  2003 study by J. A. DiMasi, R. W. Hansen, and H. G. Grabowski, “The Price of Innovation: New Estimates of Drug Development Costs,” Journal of Health Economics (Vol 22, pp. 151–185), puts the average development time at 7.5 years. The authors state this does not include pre-phase I clinical trials. Various sources include the discovery and preclinical periods, putting the average at up to 12 years. 10

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Maximize and sustain profitable growth

financial results Grow and expand new product revenues

stakeholder value

Realize the potential of existing, in-line products

Patients/Healthcare Providers

enablers

Regulators

Optimize resources and drive efficiency

Payors/Government

“Ensure compliance and patient safety”

“Develop high-quality, life-enhancing products”

strategic capabilities

Expand geographically into new/emerging markets

“Provide value for money”

Development

Production

Commercialization

Networks

Market- and customer-driven innovation

Strategic sourcing and supply management

New product launch and marketing excellence

Portfolio valuation analysis

New growth platforms/ product portfolios

Lean and flexible manufacturing

Medical marketing and science-based selling

Business development

R&D productivity

Quality, safety, and compliance

Pharmacoeconomic value proposition

Alliance/Partnership management

“Develop high-quality, life-enhancing products”

“Ensure compliance and patient safety”

“Provide value for money”

FIGURE 1: GENERIC STRATEGY MAP FOR A PHARMACEUTICAL COMPANY

Market- and Customer-Driven Innovation. At the heart of its innovation process, Hospira aims to “Increase customer-valued product innovations,” an objective focused on listening to and learning from its customers. Its measure of success is maximizing the number of new ideas that lead to funded initiatives and intellectual property. Doing so requires aggressively scanning for external opportunities. New Growth Platforms/Product Portfolios. As with most pharmaceutical and life sciences companies, developing market-leading growth platforms is critical to Hospira’s future success. To ensure a balanced portfolio of short-term and long-term opportunities, and to focus its investment in the right areas, Hospira follows a rigorous portfolio management process supported by a measure called expected net present value (eNPV). This risk-adjusted NPV measure is calculated by individual product and rolled up by product portfolio, such as devices and biologics. R&D Productivity. Ultimately, R&D’s performance can be measured by marketplace return versus investment in new product development (NPD).

Hospira measures this ROI as a productivity index: the value of future earnings divided by the R&D costs required to generate those earnings. Every platform has a different trajectory, but for mature product portfolios the goal is to significantly increase productivity levels in the next five years. “To achieve this goal,” explains Sumant Ramachandra, MD, PhD, and chief scientific officer, “we are meticulously focused on improving cycle time and costs. We are developing and implementing enhanced NPD processes, adopting rigorous project management controls and support, and optimizing our project resource planning and management.”

come to view their supply partners as collaborators—extensions of their enterprise. Merck’s manufacturing division represents a leading example of this view. It established a network of external partners (such as manufacturers of ingredients used in medicine production and packaging manufacturers) to perform nonstrategic activities in the value chain better or at a lower cost. This practice enabled Merck to eliminate manufacturing assets that it no longer needed and boost utilization of the ones it retained. This approach offered two additional benefits: it reduced labor costs and converted certain fixed costs into variable costs. Merck’s BSC measured the establishment of these critical external partnerships. (Other companies creating external partnerships might measure how quickly nonstrategic activities are transferred to external partners, or the percentage of processes that are integrated into partners’ supply chains.)

Let’s look at two industry leaders that have adopted the Balanced Scorecard approach: one, for its production-related functions, the other, for its quality function.

Lean and Flexible Manufacturing. Like most manufacturers, Merck must meet product demand on time, at the desired quality levels, and with the features that consumers value, such as userfriendly packaging or easy-to-swallow tablets. “The key to matching the pace of production to customer demand,” notes Scott Higgins, director of strategy and Lean Six Sigma, “is implementing lean production methodologies that drive waste from the system.” Merck used a “voice of the customer” survey to track satisfaction externally (i.e., of its leading distributors), and the measures “right first time,” “cycle time,” and “quality (assurance)” to track progress internally and as leading indicators of satisfaction.

Strategic Sourcing and Supply Management. Companies in many industries have recognized the importance of sourcing and supply relationships in achieving production goals. Manufacturing organizations, too, have

Quality, Safety, and Compliance. The customer perspective in the quality scorecard of a leading U.S. pharmaceutical company contains measures such as customer complaints, compliance rates, recalls, market withdrawals,2

Strategic Theme #2: Production

2 “Market withdrawal” means removing a drug from the market or correcting a minor violation. The latter, according to the U.S. Food & Drug Administration, is one not subject to legal action, such as tampering with no evidence of manufacturing or distribution problems. j u l y – a u g u s t

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and regulatory notifications or warnings. The overriding goal is to prevent a failure due to a quality or compliance problem—a significant financial and reputational risk to the company. Related internal process perspective metrics include “recalls due to failure of the quality systems” and “interruption of operations due to failure of the quality systems.”

Strategic Theme #3: Commercialization A leader in vaccines and other drugs, GlaxoSmithKline (GSK) has turned to the BSC approach to boost success in commercialization. Besides sales and marketing, commercialization also

istration versus industry average,” or “time to listing” (e.g., on a formulary). For marketing excellence, companies might track “number of prescriptions filled compared to those filled by competitors.” Medical Marketing and Science-Based Selling. Given the complex nature of many of the newest medicines, pharmaceutical companies must emphasize the science behind their products and how they benefit patients, payors, and other external stakeholders. These firms employ PhDs and MDs as customer-facing medical managers, often dedicated by therapeutic area and working in brand teams, to engage with key external

To excel at all of these strategic capabilities, pharmaceutical and life sciences companies must build a strong foundation of leadership, culture, systems, and technology. focuses on market-access related functions, such as medical affairs, regulation, government affairs, and business development.

experts and healthcare providers and inform them about pharmacoeconomic and clinical studies.

New Product Launch and Marketing Excellence. Pharmaceutical and life sciences companies must excel at introducing new products and line extensions. “Whether for innovative products or generics,” explains Cesar Rengifo, general manager of Brazil at GSK, “we must proactively plan and systematically invest in market preparation to ensure optimal access, reimbursement, and launch price for our products.”3 To maximize the market penetration and commercial value of its products throughout their lifecycle, GSK focuses on such marketing strategies as customer segmentation and analysis, brand planning, and the four P’s (product, price, placement, and promotion). Useful metrics for new products launched might include “time to reg-

GSK also requires its sales reps to have technical knowledge of its products so that they can successfully position scientifically complex products with healthcare providers. “At GSK, our first rule is to search for and provide what’s best for patients, independent of economic results,” says Rengifo. “The key to successfully matching our products to patient needs therefore depends on being able to articulate the clinical differentiation and value of our products. So we must bring data from clinical research and pharmacoeconomic studies into conversations with healthcare providers. Reps must know how our products compare to similar ones from competitors, and, most important, must be able to explain how the products benefit patients.”

Pharmacoeconomic Value Proposition. To satisfy the demands of government and private payors, companies generally develop pharmacoeconomic studies two years prior to a drug’s launch. Such studies evaluate the cost and effectiveness of a drug based on its performance in clinical trials. The types of analysis include cost-benefit analysis, which might show the tradeoff between a drug’s higher cost and the savings it yields in reduced hospitalization time. The data is designed to convince local authorities of the drug’s benefit. Companies also establish a value proposition that addresses the unique clinical, economic, and social benefits of their products, which they communicate to healthcare providers, payors, patients, and other key stakeholders. In this area, GSK measures market access in terms of regulatory approval and formularies4 as well as its win rate in competitive selling situations.

Strategic Theme #4: Networks Portfolio Valuation Analysis. Given the wide-ranging needs of their diverse customer bases, pharmaceutical and life sciences companies must continually evaluate opportunities to better serve customers while also monitoring competitive threats. Especially as their products near or pass their peak commercial value, companies must address gaps in their portfolio through proactive planning, recognizing each product’s payback period and lifetime value. This critical analysis supports business development and product lifecycle management activities. Business Development. For pharmaceutical and life sciences companies, business development typically refers to addressing gaps in their portfolios through acquisitions, joint ventures, and licensing agreements. When growth goals appear impossible to meet through organic growth, busi-

3 “ Optimal access” refers to pricing a drug just right—higher for a breakthrough product with no competition, lower for a generic facing competition—to get it listed on government, HMO, and hospital formularies. 4 L ists of prescription drugs approved by a given plan, such as a company’s HMO plan. In countries with government healthcare, the lists show which drugs the government will reimburse. 12

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The Role of the Office of Strategy Management To be successful, pharmaceutical and life sciences companies must pursue some combination—or all—of the strategies we’ve discussed. But how can they effectively manage these multiple strategic themes simultaneously, allocating investment among potentially competing priorities? The answer, as companies such as Merck and SOHO Group have shown, lies in the Office of Strategy Management (OSM). The OSM manages strategy and performance in two ways: holistically (exploiting opportunity while controlling risk) and dynamically (having the flexibility to reprioritize areas of the strategy and reallocate resources based on their performance). When Merck established its Strategy Realization Office in 2005, the goal was to ensure execution of CEO Richard Clark’s “Plan to Win.” The office provided extensive support to initiative teams, helping them identify and mitigate risks that affected their ability to realize the initiatives’ intended benefits. The office also created local-level offices to support key functions and their teams in advancing strategy execution. The OSM at SOHO Group, the Indonesian pharmaceutical company and 2007 BSC Hall of Fame winner, initially performed the textbook roles of an OSM: creating local structures to implement and monitor strategy and cultivating strategic competencies companywide. After years of refining these roles, it is now involved in project management, business development, and customer intelligence.

ness development plays a critical role. Of course, it’s one thing to successfully complete deals and quite another to make those deals successful. Increasingly, companies are measuring how effectively they integrate acquisitions and manage their partnerships. Alliance/Partnership Management. Pharmaceutical and life sciences companies must be adept at building trusting and enduring relationships with their partners and external stakeholders. Solvay (a top-40 pharmaceutical company) and Quintiles (its clinical trials supplier) use alliance managers and an alliance BSC to measure and manage their strategic partnership.5 In the business-to-government context, companies’ government affairs professionals and key account managers build contacts at multiple levels of government and justify the value of their company’s entire portfolio. They also navigate the regulatory approval process, as well as market access and procurement processes (in places where the government buys medicines, such as a new vaccine, to provide to citizens).

The Cross-Functional Imperative Given the unprecedented level of industry change, as well as the inherently complex nature of pharmaceutical and life sciences strategies, tools such as strategy maps and BSCs and the cross-functional Office of Strategy Management play a vital role in successful strategy execution. It’s no wonder that Bain & Company’s latest survey of management trends revealed that pharmaceutical and biotechnology companies registered the highest levels of satisfaction with the Balanced Scorecard.6 Such companies well understand that functional excellence demands crossfunctional collaboration.

Enablers: Learning and Growth To excel at all of these strategic capabilities, pharmaceutical and life sciences companies must build a strong foundation of leadership, culture, systems, and technology. To excel at development, for example, an innovation- and science-based culture is critical; to excel at production, you need a quality- and compliance-minded culture; and to excel at commercialization and network building, you need an entrepreneurial and customer-focused culture. All of these distinct cultures need to coexist within every company.

Barnaby Donlon leads the Palladium Group’s industry practice area focused on pharmaceutical and life sciences companies. He is a member of Palladium’s strategy execution consulting leadership team.

To learn more “Catalyst for Global Growth: The Office of Strategy Management at Serono” (BSR January–February 2006; reprint #B0601C) describes the important role the OSM played at 2005 BSC Hall of Fame winner Serono (today Merck Serono). The company is also profiled in the 2006 BSC Hall of Fame Report. See “Driving Transformational Change: Strategy Execution at Merck,” BSR July– August 2009 (Reprint #B0907C), which profiles Merck’s innovative and ambitious OSM, called the Strategy Realization Office.

Continue the discussion ...and see pharma strategy execution case studies at www.thepalladiumgroup.com/bsr/ DonlonPharma. Reprint #B1007C The author and editor wish to thank Michael Contrada of Bull River Group (and former SVP at Palladium Group) for his guidance in the preparation of this article.

It is also, says President Director Marcus Pitt, “helping to coordinate major strategic initiatives, gather market and competitor intelligence, and identify new products, potential partnerships, and acquisitions.”

5F  or more on the Solvay–Quintiles alliance, see R. S. Kaplan, A. Martinez-Jerez, and B. Rugelsjoen, “Managing Strategy with External Partners,” BSR January–February 2009 (Reprint #B0901A); and R. S. Kaplan, D. Norton, and B. Rugelsjoen, “Managing Alliances with the Balanced Scorecard,” Harvard Business Review, January–February 2010. 6 D. Rigby and B. Bilodeau, Management Tools and Trends 2009, Bain & Co., p. 37. j u l y – a u g u s t

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Unify Your Far-Flung Workforce Around Your Strategy By Lauren Keller Johnson, Contributing Writer How do you unite your widely dispersed workforce behind that potent new strategy? Discover the secrets of four recent inductees to the Palladium Balanced Scorecard Hall of Fame for Executing Strategy. These strategy execution exemplars hail from four continents and a broad spectrum of industries. Their stories reveal vital lessons for any organization seeking to rally its troops, near and far, behind its new strategic direction. You’ve defined a powerful new strategy crucial to your organization’s success. But that’s only part of the battle. Your strategy won’t deliver its promised competitive advantages unless you gain everyone’s commitment to putting it into action. To unify managers and employees behind the strategy, you must communicate it in clear and compelling terms and help people throughout the organization see how they can execute the strategy through their everyday actions. What’s more, you have to make them want to do their part. This is challenging even for organizations whose employees work in the same vicinity. In such enterprises, people have ample opportunities to talk strategy face-to-face and get together spontaneously to grapple with problems and share best practices. These are essential ingredients for cultivating shared commitment to strategy execution. But in organizations with far-flung workforces, uniting everyone behind the strategy becomes a Herculean task. How do you get people who work in scattered facilities or regions, who are focused on different links in your industry’s value chain, and who operate in widely dispersed time zones to pull in the same strategic direction? Physical distance can be your enemy—even if you’re a relatively small organization operating in only one country. Consider how four recent inductees into the Palladium Balanced Scorecard

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Hall of Fame have grappled successfully with this very challenge.

Grupo Acir (Mexico City) Leading Mexican radio broadcasting company Workforce size: 1,400 Locations: 175 radio stations, presence in 71 Mexican cities, 10 major regional divisions

New legislation capping political campaign spending shrank Grupo Acir’s long-reliable revenue stream derived from political advertising. Realizing that the company’s dependence on political advertising had made it vulnerable, executives decided to beef up revenues from commercial advertisers. The strategy called for a whole new business model that hinged on delivering more listeners to Grupo Acir’s private sector customers. If the company could deliver more listeners, advertisers’ cost per point (CPP; what it costs to broadcast an ad heard by 1,000 listeners) would decrease. Lower CPPs would in turn enable Grupo Acir to justify charging premium prices for ads. Aligning the company’s divisions behind the new strategy was daunting, as they had long competed for attention and resources and now operated as silos. To break down the silos, Grupo Acir created an online Strategy Information System to promote “a common language” throughout the organization. The system indicates who owns which strategic objectives; communicates

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company and division results on objectives; and prominently displays Grupo Acir’s mission, vision, and strategic destination as expressed in the corporatelevel strategy map. To further communicate the strategy, the company held a “Signal of Change” event for employees. Designed to resemble a blockbuster movie premiere, the event presented Grupo Acir’s new mission and vision, along with the strategy it had defined for the next five years. The event’s producers emphasized the importance of meeting the needs of Grupo Acir’s two main customer segments—listeners and advertisers—and its intent to seek Spanish-speaking markets outside Mexico. A monthly newsletter, containing a section devoted to the company’s Balanced Scorecard program, reinforces strategy-related messages. Grupo Acir has also made important changes to its compensation and incentive system. For example, bonuses are tied to employees’ attitudes and skills as well as to performance on corporatelevel strategic objectives, business-unit objectives, and operational objectives. And since launching its BSC-based management system, the company now invests 80% of its training budget in strategic job families, the categories of jobs deemed to have the greatest impact on advancing the strategy. Execution premium: Improved collaboration between the previously competitive divisions.

Volkswagen do Brasil (São Paulo) Volkswagen Group’s largest operation in the Americas Workforce size: 22,000 Locations: 4 plants, 500 suppliers, 600 dealers

Intensifying competition from domestic rivals, devaluation of the Brazilian real, and financial crises in its major export markets had clobbered VWB’s market share and led to several consecutive

Balanced Scorecard Report A joint publication of Palladium Group, Inc., and Harvard Business Publishing Editorial Advisers Robert S. Kaplan Professor, Harvard Business School David P. Norton Director and Founder, Palladium Group, Inc. Publishers Robert L. Howie Jr. Managing Director, Palladium Group, Inc. Joshua Macht Group Publisher Harvard Business Review Group Executive Editor Randall H. Russell VP/Director of Research, Palladium Group, Inc. Editor Janice Koch Palladium Group, Inc. Copyright © 2010 by Harvard Business School Publishing Corporation. Quotation is not permitted. 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 helping organizations execute their strategies. Our expertise in strategy management, performance management, and business intelligence helps our clients achieve an execution premium. 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.

years of losses. To reconquer its top spot in the market, VWB defined a new strategy that included attracting fresh investments in plants and modernizing its offerings. Executives knew that mobilizing the company’s immense workforce would be essential in putting the strategy on a fast track. To that end, the HR team designed powerful initiatives including the “Act to Win” program, which uses multiple communication channels to help employees understand the strategy, articulate how they can contribute to executing it, and take the actions needed to deliver those contributions. Employees get updates on the company’s strategy, performance, decisions, and targets through billboards and newsletter articles. They exchange best practices (for surmounting challenges such as making field repairs) through the company intranet and weekly videoconferences. Comic strips featuring a beguiling character named Giga further reinforce messages about VWB’s strategic goals. An annual contest in which employees are invited to present ideas for projects that will deliver strategic value (such as improving a process or satisfying customers) stokes employees’ competitive spirit. In 2009, nearly 75% of VWB’s workforce participated in the contest, submitting more than 3,000 projects. VWB believes that mobilizing its suppliers and dealers is just as important as rallying its immense workforce behind its strategy. It sees its 500 suppliers and 600 dealers as crucial business partners, so suppliers and dealers are prominently represented in the strategic objectives of the internal process perspective of the company’s strategy map. Initiatives tied to these objectives include Supplier Day, a meeting to address supplier performance problems such as inadequate quality and slow delivery times. Suppliers whose performance supports the company’s strategy are recognized and rewarded at special

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events. Meanwhile, through the Dealer Academy program, the company provides dealers with training in skills such as management, sales, and after-sales service. Top dealers win recognition and rewards. Execution premiums: From 2006 through 2009, employee engagement doubled and executive engagement increased sixfold. Domestic sales (units sold) rose 67%.

Korea Customs Service (Daejon) South Korea’s national customs agency Workforce size: 4,500 Locations: 5 major bureaus, 47 customs offices

With South Korea’s international trade and tourism exploding, KCS shouldered numerous new responsibilities, including implementing free trade agreements (FTAs) and intellectual property rights (IPR) protection. But the agency wasn’t allowed to beef up its workforce commensurately. To meet its new mandates, KCS had to foster a performance mind-set in its dispersed and overworked employee base. This was challenging, because an entitlement mentality had long infected the workforce. To help sharpen employees’ focus on strategic performance, KCS began factoring performance evaluation results in to promotion decisions, instead of basing such decisions solely on seniority. KCS has reinforced the message by introducing a career development program that helps employees strengthen strategy-critical skills in such areas as FTA implementation, origin auditing, and Six Sigma (which KCS uses to remedy underperforming strategic initiatives). The most promising employees are put on a fast track. Through the individual development planning program, employees can also articulate longterm career objectives based on their abilities and interests, and then enroll in courses and other training to reach those objectives.

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Eight Tips for Unifying the Team Rocket science? Hardly. But these ideas consistently deliver results. And when used together, they can yield a powerful multiplier effect, as many Hall of Fame winners have experienced. • If possible, solicit employees’ input in defining the enterprise mission. • Seven times and seven ways: repeat key messages through multiple channels. • Give your strategy communications program a brand name to make it memorable and universally recognizable. • Post objectives owners’ names and company (and unit) results on the company intranet. Doing so raises people’s internal profiles and boosts the competitive spirit. • Bring together people from various locations for strategy seminars and team-building sessions.

has strengthened KCS’s ability to coordinate key strategy-related processes— including educating employees about the strategy. KCS has also aided its workforce in managing the expanded mandate by enlisting help from external constituencies. For instance, it set up a civilian cyber-surveillance team comprising copyright or trademark owners interested in protecting IPR. Team members work with KCS officers to monitor online shopping malls and report illegal trading of IPR infringement goods to KCS. Thanks to this partnership, the estimated value of illegally traded online goods identified by the cyber-investigation team soared from KRW 50.9 billion in 2005 to KRW 195.8 billion in 2008. Execution premium: From 2005 to 2008, employee satisfaction—with work environment, communication, rewards, and other criteria—jumped from 73% to 91%.

URALSIB Financial Corporation (Moscow)

• Share best practices through online billboards and videoconferences.

Financial services conglomerate

• Hold an annual contest for the best ideas with the most strategic value. You’ll tap in to employees’ competitive spirit, and will likely get some winning ideas.

Locations: 552 branch offices extending across 8 time zones and 74 major Russian cities

• Make strategy-critical training the centerpiece of your career development program.

In addition, KCS has consolidated performance management, strategic planning, budgeting, and finance under one roof in its Planning and Coordination bureau. Previously, the organization’s Office of Strategy Management had operated separately from its strategic planning, budgeting, and finance units. This fragmented structure had hampered cross-unit communication and collaboration. The new structure

Workforce size: 20,000

URALSIB’s breathless growth had produced a geographically immense, complex behemoth that provided a wide array of services—with no clear center of command and with a mishmash of cultures and incompatible management and IT processes. To begin unifying its disparate parts and forging a common culture and a shared way of doing business, URALSIB crafted a new enterprisewide strategy. The strategy centered on grouping products by platform (customer segment or product line), improving and standardizing business processes, and automating standardized processes and information systems to deliver new efficiencies.

URALSIB then involved employees in defining a new mission for the company by asking for their input. The resulting mission: “To improve the quality of life in Russia, to facilitate entrepreneurship by providing a variety of financial products and services, and to be the example of efficiency of business in all the key sectors of the Russian financial market.” Involving employees fostered a sense of ownership of the mission and of the strategy required to fulfill it. The company also took a disciplined approach to communicating its new strategy throughout its vast area of operation. For instance, corporate HR helped develop a set of documents defining the company’s core principles and specifying the groups that would communicate performance expectations. It then identified six types of channels for communicating strategy. These ranged from strategy seminars and team-building sessions to classes in the corporate university and internal media (including a customized version of Balanced Scorecard Report). Today, newly hired executives get up to speed on corporate strategy in weeks rather than months. URALSIB also involved top managers in developing the cascaded strategy maps and scorecards for their units, by forming map-development work groups in and providing training seminars for every unit. This approach helped erode the resistance of previously independent entities to the new strategy execution methodology. Execution premiums: Employees’ awareness of the strategy skyrocketed, from 4% to 80%. Knowledge base access rose 21% in only one year.

To learn more Grupo Acir, Volkswagen do Brasil, and Korea Customs Service are profiled in Strategy Execution Champions: The Palladium Balanced Scorecard Hall of Fame Report 2010. URALSIB appears in the BSC Hall of Fame Report 2009. Both reports are available at: www.executionpremium.org. Reprint #B1007D

Sign up for the electronic version of BSR—available only to subscribers—at www.bsronline.org/ereg. Product #B10070