Do You Have a Winning Business Strategy With Your Balanced Scorecard?

"A strategy is an integrated set of choices that position a firm, in an industry, to earn superior returns over the long run."

 

How Do You Know If You Have a Good Strategy?

A good strategy will exhibit the following verifiable characteristics.

• External Consistency:  Does your strategy capitalize on the opportunities and neutralize the threats in a unique way?
• Internal Consistency:  Do the parts fit together so the whole is greater than the sum of the parts?
• Dynamic Consistency: Does the strategy call upon the firm to do today the things it needs to do tomorrow to be successful?  Does it accurately anticipate competitive responses and handle these before they become problems.

1. Vision must be set in terms of quantifiable financial (or mission) goals
2. The goals need to be decomposed using a high-level financial (or mission) model that identifies specific elements of value creation
3. The architecture of the Strategy Map should be used to frame formulation of the strategy
4. The most appropriate strategy formulation technique should be applied contingent upon the type of strategy being pursued
   1. Differentiation based upon product innovation
   2. Differentiation based upon customer intimacy
   3. Low cost leadership/operational efficiency
5. Strategy develops as part of a closed-loop strategy management system of strategic planning and operation execution.

 

 

There are various approaches that represent a professional school of thought.  What is a 'School of Thought'?  A School of Thought is a group of people who share common characteristics of a philosophy, discipline or belief.

 

What Schools of Thought Exist Regarding Business Performance Management?  

• Quality Management: A management approach, centered on quality, based on the participation of all organization members, aimed at long term success through customer satisfaction and benefits to all organization members and society
  
  
• Shareholder Value: The shareholder's money should be used to earn a higher return than they could earn by investing in other assets with the same amount of risk
  
  
• Balanced Scorecard:  A framework that translates an organization's strategy into a set of objectives and measures and aligns the organization to them through its planning and control processes

Given the preceding, we can see that a Business Performance Management School of Thought is distinguishable from other schools of thought by its economic framework and its philosophy.

Finally, what are the required components of a Performance Management School of Thought?

 

• An Economic Model of Value Creation:  The basic model that describes the way in which value is created
  
  
• A Philosophy of Management:  The set of values by which the economic model is translated to organization action
  
  
• An Integrated Management System:  The structured process by which the approach is executed

Most organizations who wish to implement a Balanced Scorecard will need to establish a new organizational unit called The Office of Strategy Management.  

It needs to have the following key roles defined and staffed if you want assure on-going success:

 

• The Architect:  Define and clarify the philosophy of performance management and the processes required to execute
• The Integrator:  Insures that processes owned and run by other functional executives are linked to the strategy
  
  • Human Capital Management
  • Strategy Communications
  • Initiative Management
  • Financial Resource Management
  • Key Process Management
• The Process Owner:  Define, develop and oversee the execution of processes required to manage the strategy
  • Develop the Strategy
  • Translate the Strategy
  • Align the Organization
  • Plan and Fund the Strategy
  • Review the Strategy
  • Test and adapt the Strategy

Now that you have a working definition of Strategy, you can begin to answer the question, "Do you have a well formulated Business Strategy?"  Leading companies use a variety of approaches to Strategy, the Balanced Scorecard being among the most widely known and deployed. 

 

While the SAP Strategy Management (SAP SSM) tool (you may also hear it referred to as SAP BSC) fully supports the Balanced Scorecard approach to strategy and is one of the few tools certified by Kaplan-Norton, the inventors of the Balanced Scorecard, as well as numerous others, the real effort remains the definition and acceptance of the BSC framework among the organizational units before, during, and after the implementation of the BSC.

 

Getting Strategy Right Requires a Balance

 

To help you align your Strategy, Objectives and Initiatives, please download the balanced scorecard template using the form located further down the page.

• This template can be used to develop an enterprise wide Balanced Scorecard.  You can also use it to develop Balanced Scorecards for individual organizational unit with your business.
  
  
• This will help you leverage our SAP BSC SSM Best Practice Expertise.
  
  
• It is based on a variety of global project experiences
  
  
• It will help you define and manage your Balanced Scorecard Key Performance Indicators.

 

This template provides a robust method to tie complex objectives and initiatives together which can be used in your enterprise Strategy Management deployment.  We can help you develop a complete enterprise wide Strategy Management approach.

The Balanced Scorecard is a strategic management tool which allows you to tie your quantified vision back to your Perspectives, Objectives and Initiatives as well as associated Key Performance Indicators (KPIs).  It is then deployed across organizational units so that each organizational unit has both a clear mission that it has bought into, as well as a global vision of what the Company's strategy is.  

This approach allows each organizational unit to make the required trade-offs among the various activities that they might make, all of which are typically constrained by both budget and manpower resources.   

There are numerous approaches to competitive analysis, each of which has it own pluses and minuses.  Porter's Five Forces, for example, is a very popular, well regarded approach.  However, it does take considerable time and effort to get useful information from it, and usually will require some investment in 3rd party information sources, of which there are many of varying qualities available in the market.

As the BSC approach to Strategy Management is well established, there are already a large number of Industry Specific and Strategy specific templates available.  This is not to say you should just rely on them to build out your BSC.  If you do, though you may save some time and effort, you will give up the learning and development the organization will gain from developing their own BSC.  

It is therefore a smarter approach to start with a template but not to rely on it totally.

Your BSC, once developed, can provide a roadmap which you can follow in your day-to-day operations.  However, you will need to ensure you have a Strategic Management steering committee that is consistently monitoring your progress against the plan. 

This is why it is imperative to have the right Strategy Management Software along with a robust datawarehouse to ensure your operation is able to actually execute against the plan while making adjustments based on feedback.   

In order to change your business processes, you will need to understand them and be able to measure them using a performance scorecard.  That is why you will need to perform Value Stream Analysis to develop a comprehensive picture of how your processes are supposed to work as well as how you should measure them.

Without doubt, the biggest challenge any BSC effort will face is achieving organizational alignment.  For very large, multi-national organizations, who may have 100s to 1000s of business entities, in entirely unrelated lines of business, it will simply take a lot of coordination effort to achieve this alignment.  To help achieve this organizational alignment, you can start by using our BSC Initiative Alignment Template.

Along with the challenge of organizational alignment, will be the challenge of getting agreement on the quantified vision.  What is a quantified vision?  At its core, it is usually something along the lines of we want to increase annual revenue from X to Y, or 1 billion to 1.3 billion.  It is the 300,000,000 increase in revenue that is the part of the vision that has to be broken out in detail and which each business unit has to 'buy in to'.   

The Execution Premium@, a term that comes to us from Professor's Robert S. Kaplan and David P. Norton, who founded Kaplan-Norton, is an acknowledgement that developing a BSC is of little value unless businesses are able and willing to execute against the plan.

It's all about getting stuff done.

Companies that can not only design an effective, competitively differentiating strategy as well as execute it flawlessly, while adjusting to the market in real time, can dominate their market and obtain an outsize profit premium and ensure their long term survivability. 

Thus, a BSC project has to be performed by strategy experts, who help ensure the company stays the course for the long term, while providing Strategic Management consulting.

One of the most common myths about the BSC is that it is still developing, which could not be further from the truth.  There are a large number of firms operating around the globe in virtually every industry who have successfully implemented the Balanced Scorecard.

• The Balanced Scorecard was ranked as the #6th most used management tool, and its usage and adoption across all sizes of businesses is forecasted to to %75.*

Sources: 1) Mckinsey Quarterly Web Survey (2006) Bain Management Tools (2009)

This is at least partially the reason there are already balanced scorecard templates you can use to get started with your BSC project.   It also means there is an established methodology for the design, implementation and on-going management of a BSC. 

One of the key templates you'll need for your SAP BSC project is the objectives & initiatives alignment template.  You can grab your copy by completing the form.

 

While the Balanced Scorecard is currently considered one of the most successful approaches to strategy, it is useful to acknowledge some of the other 'Schools of Strategy' as outlined the book "Strategy Safari A Guided Tour Through the Wilds of Strategic Management" by Henry Mintzberg, Bruce Ahlstrand and Joseph Lampel.

• Design School
• Planning School
• Position School
• Entrepreneurial School
• Cognitive School
• Learning School
• Power School
• Cultural School
• Environmental School
• Configuration School

There are, in fact, many more Schools of Strategy than this.  That's why 'Strategy' continues to be a an area subject to much debate.