Insights

Align Your Organization to a Common Vision and Goal

For organizations to move the performance needle in a desired direction it is critical for them to help individuals at all levels of their organization understand not only what that the ‘desired direction’ is i.e., what the strategic objectives are, but also how their daily decisions and actions contribute ultimately to the achievement, or lack thereof, of these objectives.

This section of the paper introduces the Balanced Scorecard Approach that was developed by Robert Kaplan and David Norton to help organizations not only formulate a well-rounded strategy but also effectively communicate it to all levels of the organization.

Create Strategy Maps to Communicate Your Strategy

It is often said that a picture speaks louder than words, and the end result of the first step of the Balanced Scorecard process is a Strategy Map, which is a visual tool that helps in the effective communication of strategic objectives (see figure 2). An additional benefit of a strategy map is the process itself of its creation. The strategy map ensures that an organization keeps four perspectives in mind while formulating their strategic objectives, namely Financial, Customer Value Proposition, Internal Processes, and Learning & Growth. This requires organizations to step outside the traditional mindset of focusing on financial objectives alone by providing them with a framework that draws their attention to the ultimate drivers of the desired financial outcomes.

Figure 3 illustrates the end result of the first step in creating a strategy map using an oversimplified example of a fictitious company's strategy. In this example, the fictitious insurance company strives for revenue growth by means of increasing sales volume that is driven by their non-captive brokers. They plan to achieve this by arming their brokers with an improved product line designed to delight the end customers while increasing the broker productivity which will also result in improved end customer service levels. The company doesn’t lose sight of their internal process objectives that are vital to support the success of the aforementioned strategic objectives, which includes excelling in broker relationship management and introducing new differentiating product features. All of which are dependent on both an aligned and well-trained workforce, which is their learning and growth objective.

It was mentioned earlier in this paper that strategy maps facilitate effective organization-wide communication of the corporate goals. So how is this communication methodology different from organizing a company-wide, town-hall meeting where top management shares their vision with the employees? These strategy maps enable employees to establish clear linkages between their organization’s strategic objectives and their day-to-day activities and operational decisions. For example, enhanced employee skills will result in differentiating product design that will delight customers, spur sales, and hence result in revenue growth.

Figure 3

In summary, not only do strategy maps enable organizations to have a balanced approach to strategy formulation, but most importantly, if integrated well with scorecards and planning activities, they can drive performance for a strategy-focused culture by communicating strategic objectives in terms that are relevant to all levels of the organization. Strategy maps also drive accountability and governance by deploying scorecards and enabling realization of the strategic goals by aligning initiatives and cost and resource allocations to strategic objectives.

Adopt Scorecards to Drive Accountability and Ownership

A familiar philosophy, which points towards the next logical step after defining and communicating the strategic objectives, is ‘What gets measured gets done!’ What needs to follow is defining how progress on these objectives shall be measured and what targets need to be hit. It is also critical at this step to agree upon the entity that shall be held accountable for performance of these targets. Regardless of who or what that accountable ‘entity’ is (which may be one or more department or individual), the goal of agreeing upon it is twofold: to facilitate governance by top management and to drive ownership.

While deploying scorecards may not be a novel concept to most businesses, the differentiator about a Balanced Score Card is that it is linked to the strategic objectives (see Figure 4). Furthermore, because the strategy is formulated with four perspectives (financial, customers, internal, and learning) in purview, the resultant scorecards have measures that are both financial and non-financial.

Figure 4

Link Planning and Budgeting to Strategy

It would be safe to say that the mention of a planning and budgeting process triggers a wince from all those involved, regardless of their role in the process. The source of this pain derives from memories of consolidating data, formatting and re-formatting excel reports, fixing those broken links between the volumes of spreadsheets, trying to interpret data they don’t trust, waiting for data and reports they needed yesterday, or wondering what value there is in continually pumping all these resources into the process if its output is likely to get out of step with the business climate within the quarter or even the month?

Thus, the Planning and Budgeting exercise, and even initiatives to improve this process, are skewed towards the production process and not towards the end goal of devising an action plan to achieve the strategic objectives. Technology firms have tapped into this opportunity and have made significant advances to alleviate the typical pain points of the production process. The resultant state-of-the-art tools render the process more reliable, speedy, accurate, and agile, thereby engaging more people. This presents organizations with an opportunity to shift the focus of this process towards creating a strategy focused plan of action to execute on the strategy, which is a critical step in closing the loop between strategic visions and daily operations.

Between the Strategy Map and Scorecards, the vision has been articulated, measures and targets have been agreed upon, and principal owners for performance against these measures have been assigned. The final step towards closing the loop between operations and strategy is agreeing upon the plan for execution. See Figure 5 for an example of the end result of a rigorous, strategy-focused planning and budgeting process where the strategic vision is translated into budgets with resource and cost allocations and financial and operating targets.

Drive Best Practices

The market climate has become far more dynamic and complex due to factors that include technology and globalization. In this environment, customers are more demanding because they are better informed and have more options. There are more global players in the market mix who constantly exert pressure to drive down prices, improve performance, and increase profitability to sustain or grow. The complex interconnectivity of economies renders the market extremely volatile.

Summarized below are some best practices which, in conjunction with technology, are being adopted and honed by businesses to quickly respond and adapt to the changing business climate.

Adopt Rolling Forecasts

Broadly defined, a rolling forecast is one that uses a time horizon which extends beyond one fiscal year, and the forecast horizon ‘rolls’ several months or quarters into the future with each update. The benefit of rolling forecasts is that they are adaptive because they respond to changes in the environment, thus providing continuous visibility to the expected outcomes and making it possible to better manage the risk of performance shortfalls.

Figure 5

Leverage Driver-Based Analysis

Often, companies have a good handle on their salary expenses, payroll taxes, rent, and other expenses, but have little idea or even visibility into what drives their revenue. Revenue drivers include acquiring new customers, extending their reach into new markets, or driving successful marketing campaigns. Driver-based analysis lets companies link the drivers to the outcomes.

Bring In External Data to Complete the Picture

Successfully mobilizing your company to meet a 10% revenue growth target may actually fall short if the market grew by 20%. To paint a more complete picture of your performance, external benchmarking should be used to set your targets, and data from external sources, such as independent customer rating polls, should be injected into your operational planning and review processes.

Move to Continuous Planning and Improvement

The value of these best practices is minimized if they are constrained by a calendar-driven approach to planning and management. Adaptive and continuous planning better positions organizations to respond to changes in the business environment by continuously providing the visibility executives need to improve performance and profitability. This underscores a need to cost-effectively build capabilities that support a more dynamic and continuous approach where it is possible to keep an eye on the ball in real time.

Monitor Financial and Non-Financial Metrics

Let’s assume that a company plans to support its revenue growth by expanding to new regions with an enhanced product line tailored for the new audience. The success of this strategic initiative should not be tracked solely by performance against financial targets. The company should measure a range of input metrics that gauge the progress of the projects that will contribute to the success of the initiative, such as those aligned to product development, operational and technical readiness, in addition to output or financial metrics such as revenue from new product sales.

Automate and Streamline

The principles and practices outlined above may seem a far cry from an achievable reality, and there is no magic pill for an organization to swallow to get bigger, better, and stronger. The good news is that powerful technological solutions are available under the umbrella of performance management solutions to enable and support this organizational endeavor. What is encouraging is that these solutions have been in market for nearly a decade. This has resulted in favorable evolution and sharpening of their capabilities. Furthermore, recent consolidations in the vendor space are driving healthy competition, which in turn is driving the players to excel in their ability to execute these solutions, build complete, integrated solutions with a long term vision in purview, and drive them to evaluate their pricing.

So what can technology do for you?

Automate Process Management to Shorten Budgeting and Reporting Cycles with Increased Security

Questionable data quality, lax security, inflexible framework, and consolidation issues all plague the heavily labor-intensive budgeting and reporting processes across most organizations. The use of purpose-built budgeting and reporting applications to automate these processes has the potential to produce immediate benefits that include:

• Reduced budgeting and reporting cycles
• Efficiency gains
• Reduced costs
• Added control
• Improved security
• Deeper analytics capabilities

Leverage Powerful Visualization Capabilities for the Enterprise and Individuals

Solutions today let you create your Strategy Map, Scorecards and Operational Dashboards and link them to actual data which may reside in systems that range from CRM, ERP, SCM to even third party data feeds. What is exciting about this aspect is that it allows for end to end integration between the Strategy Maps, Scorecards and day-to-day operations for a real time cross organization view. Furthermore, rich and easy to understand visualization of the performance towards the strategic objectives allows executives to gauge problem areas at a glance and manage issues by exception. Another powerful feature that generates tangible cost and time savings is that it empowers all its users with self-service capabilities by enabling them to access the data driving these visuals in only a few clicks.

Given all these benefits and the ease of understanding Strategy Maps, Scorecards and Dashboards, there is significant value in cascading these tools all the way from business units to individuals to ensure strategy-focused operations. The benefits of cascading these scorecards to all levels of an organization provide visibility of corporate strategy to all, thereby enabling organization-wide informed decision making in line with business drivers.

Facilitate Collaboration and Communication

GE’s former CEO Jack Welch famously said, “The day we screw up the people thing, this company is over.” The risk of introducing new processes and tools is that the processes tend to become more important than the people. Engaging people and communicating quickly and in a timely fashion becomes even more important if an organization wishes to function as a school of fish which can collectively change direction in a split second. Solutions that easily integrate with day-to-day tasks and end users' activities facilitate effective and speedy communication and collaboration. Collaboration, made easier with these tools, results in a healthy environment for open communication and rapid problem resolution.

Support High-End Analytics

Using best practice methods such as frequent rolling forecasts, external benchmarking, and what-if analysis, individuals can better predict future results and measure performance. However, data distributed across disparate systems, data quality issues, and the reliance on other resources and IT for information are some of the obstacles that prohibit organizations from weaving these best practices into day-to-day operations and extending the resultant artifacts to a broader audience.

Born to Run, but Start with Baby Steps

Even a quick glance through the contents of this paper would give a sense that building or honing an organization’s skills to execute on strategy is a multi-year, multi-step journey which needs a strong executive case for change. There are numerous benefits to breaking down the project into smaller, managable portions or iterations wherein tangible and measurable benefits are delivered at the end of the iterations. This approach generates organization-wide excitement as people begin to see the return on their investments in short spans of time. But most importantly, this methodology provides the organization with an opportunity to change the course of the project or revisit their objectives time and again to ensure that it aligns with their changing business climate and organizational needs.