The Strategy-Focused Organization

1. The Balanced Scorecard aligns organizations with strategy

The Balanced Scorecard provides a framework for describing and communicating strategy in a consistent and insightful way.

Strategic alignment. The Balanced Scorecard translates an organization's vision and strategy into a comprehensive set of performance measures that provides the framework for a strategic measurement and management system. It emphasizes achieving financial objectives, but also includes the performance drivers of these financial objectives. The scorecard measures organizational performance across four balanced perspectives: financial, customers, internal business processes, and learning and growth.

Breakthrough performance. Organizations that have implemented the Balanced Scorecard report significant benefits:

• Clarified and updated strategy
• Aligned organization with strategy
• Linked strategic objectives to long-term targets and annual budgets
• Identified and aligned strategic initiatives
• Conducted periodic performance reviews to learn about and improve strategy

By aligning the entire organization around strategy, the Balanced Scorecard enables companies to achieve dramatic performance improvements in revenue growth, productivity, and efficiency. It provides a framework for describing how intangible assets like employee skills, customer relationships, and innovation drive sustainable value creation.

2. Translate strategy into operational terms

Strategy maps and Balanced Scorecards constitute the measurement technology for managing in a knowledge-based economy.

Strategy maps. To implement strategy, organizations must translate it into specific objectives and measures. Strategy maps provide a visual representation of the cause-and-effect relationships among the components of an organization's strategy. They show how an organization plans to convert its initiatives and resources - including intangible assets such as corporate culture and employee knowledge - into tangible outcomes.

Key components of strategy maps:

• Financial perspective (e.g. revenue growth, productivity)
• Customer perspective (e.g. customer value proposition)
• Internal process perspective (e.g. operations, customer management, innovation)
• Learning and growth perspective (e.g. human capital, information capital, organizational capital)

Balanced Scorecard. The Balanced Scorecard translates the strategy map into specific objectives, measures, targets, and initiatives for each perspective. This provides a comprehensive view of organizational performance aligned with strategy. By making strategy explicit and measurable, the Balanced Scorecard enables organizations to systematically implement and evaluate their strategies.

3. Align the organization to create synergies

Synergy arises from excellent interactions among business units, and these potential interactions need to be explicitly recognized in the strategies—and the scorecards—of the individual units.

Organizational alignment. Most organizations consist of multiple business units and shared service departments. To maximize organizational effectiveness, the strategies and scorecards of all these units must be aligned and linked to each other. This creates synergy by integrating the activities of otherwise segregated units.

Methods for creating alignment:

• Develop corporate-level strategy and scorecard
• Cascade scorecards to business units
• Link shared service units to business unit and corporate strategies
• Align external partners

Value creation. Alignment enables the whole organization to become greater than the sum of its parts. By explicitly defining how units work together to create differentiated value, organizations can focus resources on the highest-impact opportunities for synergy and collaboration. This strategic integration is key to creating sustainable competitive advantage.

4. Make strategy everyone's everyday job

Strategy must be executed at all levels of the organization. People must change their behaviors and adopt new values.

Strategic awareness. Organizations must develop a comprehensive communication program to create awareness and understanding of strategy throughout the workforce. This involves using multiple channels like town hall meetings, brochures, newsletters, training programs, and executive messaging to continually reinforce strategic priorities.

Personal objectives. Employees at all levels should develop personal objectives and scorecards that link to higher-level organizational objectives. This creates line-of-sight between individual roles and overall strategy. Methods include:

• Cascading scorecards to departments and teams
• Developing personal scorecards for individuals
• Integrating strategic objectives into goal-setting processes

Incentive alignment. Compensation and reward systems should be linked to scorecard performance to motivate strategic behavior. This can involve team and individual incentives tied to achieving targets on strategic measures. By aligning rewards with strategy, organizations reinforce the importance of strategic priorities in day-to-day decision making.

5. Make strategy a continual process

Strategy must be a continual process. The art of leadership is to delicately balance the tension between stability and change.

Strategic planning. Organizations should integrate strategy into the budgeting process by using the Balanced Scorecard to set priorities and allocate resources. This links long-term strategic objectives with short-term budgets and operational plans. Key steps include:

1. Set stretch targets for scorecard measures
2. Identify strategic initiatives to close performance gaps
3. Allocate resources to strategic initiatives
4. Establish milestones for initiatives

Strategic learning. Regular strategy review meetings should be held to assess progress and adapt strategy based on new information. These meetings use scorecard data to test and validate strategic hypotheses. Key elements:

• Review strategy map cause-and-effect relationships
• Analyze correlations between measures
• Discuss emerging opportunities and threats
• Adapt strategy as needed

By making strategy a continual process, organizations can rapidly respond to changes in the competitive environment while maintaining focus on long-term strategic objectives.

6. Mobilize change through executive leadership

Executives of adopting organizations were using the Balanced Scorecard to align their business units, shared service units, teams, and individuals around overall organizational goals.

Executive sponsorship. Successful Balanced Scorecard implementation requires active leadership from the executive team. Leaders must create a sense of urgency, develop a clear vision for change, and continuously reinforce the importance of the strategic management system. Key leadership actions:

• Communicate the need for strategic change
• Build the guiding team to lead the effort
• Create and communicate the change vision
• Empower employees to act on the vision
• Generate short-term wins to build momentum
• Consolidate gains and anchor new approaches

Governance. Executives should establish new governance processes centered on the Balanced Scorecard. This involves using the scorecard as the agenda for management meetings, decision making, and resource allocation. By putting strategy at the center of management processes, leaders reinforce its importance throughout the organization.

7. Avoid common pitfalls in Balanced Scorecard implementation

We can learn from failure. In Chapter 14, we will discuss the pitfalls that led to these missed opportunities.

Implementation challenges. While many organizations have successfully implemented the Balanced Scorecard, others have struggled to realize its full potential. Common pitfalls include:

• Lack of executive sponsorship and involvement
• Keeping the scorecard at the top
• Viewing it as a one-time event rather than an ongoing process
• Using only lagging indicators
• Failing to link the scorecard to key management processes

Keys to success. To avoid these pitfalls, organizations should:

• Ensure active executive leadership throughout the process
• Cascade the scorecard throughout the organization
• Use the scorecard as a framework for continual strategic learning
• Balance leading and lagging indicators
• Integrate the scorecard into planning, budgeting, and review processes

By learning from both successes and failures, organizations can develop robust implementation approaches that create sustainable strategic focus and alignment. The Balanced Scorecard is a powerful tool, but realizing its full potential requires careful design and execution.

Last updated: October 19, 2024