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October, 2006

Making Scorecards Actionable Newsletter # 23 (2006)

Content of Making Scorecards Actionable Newsletter # 23 (2006)

» Strategy maps and scorecards in virtual organisations
» Petri in Persian translation
» Teaching BSC in Russia



STRATEGY MAPS AND SCORECARDS IN VIRTUAL ORGANISATIONS

For the last months, we have been engaged in yet another strategy- and management control systems development project in a virtual organisation. The challenge in these projects is that the “organisation” as such lacks legal boundaries. From a strategy development perspective this might be a snag, but not a major difficulty: most organisations venture with partners to some degree, so there is at least some experience on how to negotiate ambitions, expectations and contribution.

Creating a management control system for a virtual organisation – on the other hand – often face a set of different problems. To start with, budgeting and performance planning is typically assumed to take place within legal entities. So, when there is a need for activities to be performed in one legal entity that will mainly be used by other entities, a question may be raised on who will fund this particular work.

Another important issue – when separate legal entities come together and cooperate under a shared brand name (the demarcation of the virtual organisation) – is that the participants take a stance on the goals for the virtual organisation as such. All too often we meet designers of strategies and scorecards that assume that the goals are identical on the virtual and on the legal level: that the legal entities’ goals are the same as the virtual organisation’s goals.

Whether this is the case or not, is of course different for each specific virtual organisation. But our experience is that people too often take goal similarities for granted. A short example can illustrate this: A group of consultants may choose to operate under a shared brand name. The brand name and the organisation’s facilities (e.g. office and administrative support) is developed and maintained by a small management team in the virtual organisation. Their responsibility is to create the best possible environment for the consultants to operate in. Externally as well as internally; They should create a brand name that will allow the consultants to be regarded as qualified suppliers in the external market, they should create an internal environment that both allows the consultants to focus their attention on client oriented activities as well as an office environment that is appreciated by the consultants and their clients. The virtual organisation’s management team should thus be evaluated (and maybe even rewarded) based on their ability to create and maintain this environment (internally and externally). Success could for example be evaluated based on “brand name” recognition, number of consultants applying to become partners of the virtual organisation, degree of satisfaction among existing consultants and so. None of these goals or indicators are relevant to the individual consultants.

The consultants’ goals should rather focus on relationship generation and management, personal competence development and – most important of all – billable time in client assignments. Typical indicators of success for a consultant are therefore billing, size of personal network, time spent on competence development and conceptualisation (e.g. measured as number of articles published in relevant management magazines).

Hence, the virtual organisation’s and its participants’ goals are rarely identical. On the contrary: the virtual organisation is responsible for creating a context, and the participants are responsible for leveraging this infrastructure. The differences in responsibility should also be reflected in the goals and how performance is evaluated.

In our book, Making Scorecards Actionable, we discuss these and similar questions under the label “Interfaces between strategy maps and scorecards” (critical design issue # 4): where we e.g. discuss how goals and strategies differ between hierarchical levels. In general, we advice practitioners to show some caution when they propose that the same goals and indicators will be used in both the operative units and the supporting head office.

In a virtual organisation there is as well a need for a shared management control system that is accepted by all participating units. The formal financial accounting system is, as is already mentioned, limited to each legal entity’s performance, so it does not report on any shared achievements in the virtual organisation. However, to our knowledge, few virtual organisations institutionalise shared planning- and monitoring systems. Instead, they stay with the hopes that implicit ambitions will be enough to control the member organisations to focus on what is regarded important. As long as the cooperation is fairly novel, attention might be drawn to the “right” issues. But as the businesses continue to develop, there is an obvious risk that attention will gravitate towards the legal entity’s goals and towards the legal entity’s (financial) results.

In our federative organisation’s effort to create a virtual entity – which is bigger than the sum of the participating legal entities – much effort has been invested in establishing a notion on what will characterise the cooperative venture. To this end, an explicit vision statement has been formulated, core concepts have been defined and a set of strategies have been developed. The following step is now to embed these intentions in each legal entity’s annual business plan. As a consequence of this, some confusion has risen: should the entity plan and set targets for goals that reside outside its legal structure? Shall it take costs (that their owners will bear) in order to deliver services to sister organisations?

By creating a planning framework that suggests how the federative aspirations and activities should be included in the local business plan and establishing a dialogue process where the separate entities come together to report on their ambitions to help others, as well as signal what kind of support they would appreciate from the others, mutual adjustment is established on a multilateral level – between sister organisations – rather than unilaterally between the federative core and each specific unit.

The goals that will be included in each legal unit’s business plan will of course be unique to that particular organisation and will probably also be expressed in non-financial terms, such as “number of customers we have supplied sister organisations with”, “time spent on internal development projects” or “number of articles about us in relevant business press”. The goals and targets that relate to the federative ambitions should both focus on the individual organisation’s contribution to others in the federation and on the benefits of belonging to the federation.

The goals mentioned above are valid descriptions of success on the operative level. In the future, however, our virtual organisation also needs to translate its shared goals and strategies into a robust, yet simple, management control system for planning and evaluation. A management control system that will assist the management team of the federation to know whether they are successful in managing the virtual organisation or not – and also serve as a dialogue tool to engage in discussions with the operating entities.

The next step in developing the virtual organisation is to create a set of performance indicators that are derived from the shared goals and strategies, and to create a systematic dialogue process that addresses the shared ambitions and targets as well as creates a common feedback system on collective results. A first step is already taken by asking each legal entity to describe its cooperative activities and expected benefits, in their local business plans. Next step will be to create goals and feedback mechanisms on the federative level.



PETRI IN PERSIAN TRANSLATION

Recently we learned that Carl-Johan Petri’s article “Managing geographically dispersed data acquisition” has been translated into Persian. The article focuses on data acquisition in DHL, i.e. the activities DHL performs to codify knowledge in a shared computerised information system. The translated article can be found here: www.irandoc.ac.ir/data/E_J/vol3/teleworking/acquisition.htm

For those who don’t read Persian, a short summary of the article in English follows:

Information sharing has usually been described from the information consumer’s point of view – i.e. how an individual user can log on to an information system and access information about for example customers, products, processes et cetera. Less attention has been paid to the sourcing of this information, i.e. how the information is fed into the systems. Instead, data entry has been regarded as something unproblematic, similar to the example below:

"Free-format comments, for instance, can refresh a contact person's memory prior to each new contact with a given client. Or, perhaps, help a marketing manager discover which hot buttons are at the front of customers' minds these days. With practice, it is relatively easy, as you are on the phone with a client, to take notes on the conversation within a 'comments' section on the computer. Then at any future point, you and others can do a word search for any key word or phrase that may appear in the comments." (Poulos, 1997, p. 56).

It is interesting to see how superficially Poulos comments on the data entry activity; “…it is relatively easy…to take notes on the conversation…”. Davenport and Prusak (1998) has a somewhat more balanced view and suggest various initiatives that can be taken to promote creation, sharing and utilization of information. They propose that internal information sharing should be structured as markets; where knowledge sellers and knowledge buyers can meet. Exchange (knowledge transfer) occurs when a pricing system is put in place – rewarding sellers to share (i.e. document) what they know. Even though the word “pricing system” indicates financial compensation, the authors argue that also other “currencies” can be used, such as appreciation or prestige.

Hansen et al. (1999) dissect the knowledge management concept and conclude that an organisation can use either of two different strategies to manage knowledge transfer. Information can either be documented and shared through information systems (a codification strategy) or shared though personal conversation face to face (a personalization strategy).

Dunford (2000) discusses the codification strategy in particular and makes a distinction between input and output activities. Input deals with the actions required to feed a shared system with information, where as output focuses on leveraging the available information resources. An important challenge, according to Dunford, is to encourage employees to spend time on knowledge creation and data entry.

Dunford thus problematizes Poulos’ simple statement above, and challenge whether the “contact person” will actually take notes during the conversation, as proposed. His suggestion is that documentation and data entry is more difficult than that, and will probably depend on other factors than just “some practice”.

Data entry is rarely a fully automated process, free from manual intervention. This holds for complex data entry, e.g. in a management consulting firm’s knowledge management system as described by Dunford, as well as for simple data entry like scanning bar codes in the supermarket (Raman et al., 2001). Even if the necessary systems are in place – be it a CRM-solution where sales representatives can take notes during a telephone conversation or cash registers where cashiers scan the products they sell – data is captured by manual intervention. Raman et al. (2001, p. 28) illustrate this challenge and argue that many retailing companies cannot trust the information in their databases: “Why are the data so inaccurate? Some of the problem can be traced to human nature. Think about how clerks behave at cash registers. If a customer is buying peach, orange, and strawberry yogurts at the same price, the clerk often swipes one of the yogurts – say, peach – three times. As a result, the store’s inventory system says the peach yogurts are down by three but the others are unchanged. Managers routinely exacerbate this problem by tracking checkout clerk’s speed but not their accuracy.”.

There are of course big differences between data entry in a supermarket’s cash registers and a management consultant’s decision to document experiences from a previous project in the knowledge management system: the type of information differs, the codification process differs and the individuals (the information producers) differ.

Still, the particular activity to store information in a database – and more important the individual employee’s attitude towards the activity – is similar from an organisational point of view. If Raman et al. are correct; bad data quality in the supermarket’s databases is a result of the management principles in use, focusing on “speed but not accuracy”. Similarly, Dunford’s examples from the management consulting industry suggest that billable hours are often considered more important than thorough documentation. The management principles may thus turn the organisation’s attention away from codification and data entry.

This study focuses on the management principles that have been implemented in DHL Worldwide Express to assure that couriers, agents in the customer service centres and DHL’s subcontractors all over the world enter information about all parcels they handle in the shipping system, such that the customers can track their shipments’ whereabouts.

DHL has focused data acquisition and realized that information is not fed into the systems automatically. On the contrary – business procedures, performance evaluation, external contracts, and internal education, has been designed to emphasize the importance of data entry. This makes DHL an interesting case to study in order to understand the management principles used to assure geographically dispersed data acquisition.

Petri and Olve (2000) discuss how geographically dispersed organisations can be managed, with a special focus on geographically dispersed knowledge acquisition. In their presentation, they use three generic dimensions (structure, procedure and culture) to elaborate on different control instruments.

By structure they mean the anatomy of the organisation; how the units relate to each other, their goals, roles and tasks, as well as the reporting structure in the organisation. When talking about how activities are organised, structure often seems to be the most important part – or at least the most visible. Human actors intentionally design these structures (departments, responsibilities, roles, tasks, reporting structure and so) in order to achieve joint results, and these structures seem to affect how people behave and how they perceive performance.

Data entry can be mandated through such structural mechanisms, for example via internal or external contracts. The contracts as such, however, do not make data entry mandatory. It is the design of the contract that may mandate data entry. If an agent accepts the agreement, which stipulates that she is required to supply information to the system, the principal may refuse to compensate the agent if she doesn’t fulfil her obligations. From a structural point of view, the design of the contract can make data entry mandatory.

Similar contractual solutions can be found in the knowledge management literature, where employees can be assigned specific roles, implying a formal data sourcing responsibility. It is for example claimed that Bain & Co, the consultancy, appoints case historians in each project, whose responsibility is to document findings in and after each assignment (Harrington, 1996, p. 32). By accepting the role, the individual employee also accepts the responsibility to enter findings into the knowledge management system.

Some companies even embed data entry (i.e. operationalize knowledge sharing) in the performance evaluation systems (Davenport, 1997, Davenport and Prusak, 1998), implicating that employees who do not share their insights through shared information systems will not get promoted. Consequently, data entry is considered a mandatory responsibility that the employee accepts when she joins the firm.

Data entry may also be mandated by exogenous factors, such as legal regulations. Company laws, for example, stipulate that data about financial transactions must be registered and stored (on paper or in computers) in a coherent way, by the company.

Procedure addresses administrative routines that members in an organisation are expected to adhere to. Structure creates the notion of what shall be achieved (goal) and by whom (responsibility), where as procedure focuses on how (behaviour) it should be done.

Mandatory data entry can be operationalized through procedural mechanisms in the information system, such that the users cannot finalize an activity without entering data into certain predefined fields in the system. The same “checks” may also be embedded in internal workflow systems, such that an order cannot be filed in the sales system unless all relevant information is entered. Albeit, the checkpoints don’t have to be implemented in a computerized system – they may also be conceptual. Westin (1998), for example, describes how a pharmaceutical company decided to only count customer visits that were documented in the sales support system in the remuneration system. Hence, if the sales representative didn’t document a meeting, it didn’t count in the internal performance evaluation.

By culture, finally, Petri and Olve address the socially conditioned behaviour in an organisation, and concentrate on how people can be influenced to share a common way of thinking. Culture is, however, different from structure and procedure, in the way that it is not directly accessible to management.

“Culture” is still often mentioned in the literature as an important facilitator, promoting knowledge sharing (Hickins, 1999). Or as Davenport et al (1998) put it: "Projects that don’t fit the culture probably won’t thrive, so management needs to align its approach with existing culture – or be prepared for a long-term culture change effort".

Of course culture has a controlling effect, but it is difficult for someone – individually – to change it. In some organisations data entry is not perceived as important, and no one would notice whether a person is sharing information through the shared systems or not. In others, however, the colleagues may depend on the information that is stored in the systems and if an employee doesn’t document according to her colleagues’ expectations, she will probably be notified. This has been described by Hansen and von Oetinger who quote a newly hired employee at BP: “Early on, people on the BP side made it quite clear [to legacy Amoco managers] that you might have spectacular individual business unit performance, but if you weren’t seen to be making contributions beyond your own unit, you wouldn’t be viewed favourably” (Hansen and von Oetinger, 2001, p. 112).

An internal performance measurement system – for example in a balanced scorecard format – can be used to monitor data entry. The operation managers at DHL regularly examine performance with regard to information acquisition: degree of data entry is measured and used to compare different sites’ data acquisition to assure that information is recorded systematically.

The findings in this paper primarily focus on the manual activity to scan bar codes on parcels with a laser gun. Similar to Raman et al’s (2001) findings regarding scanning in supermarkets, this activity may be more or less focused. Data entry can be addressed as an important responsibility in contracts as well as in the working procedures. When the management principles – organisational structure, goals and targets, performance evaluation et cetera –promote codification, it will influence all agents to document their activities and observations – making the information available to others regardless of physical and temporal constraints.



TEACHING BSC IN RUSSIA

During the autumn we have been invited to teach about BSC and strategy realisation at The Stockholm School of Economics in Russia (SSE Russia). SSE Russia started its activities in 1997 when the first campus was established in Saint Petersburg. A second venue was opened in Moscow in 2003. SSE Russia is part of the Stockholm School of Economics group.

SSE Russia aims at supporting “the development of sustainable business in Russia”. This is done by offering training, upgrading of management competence and related support activities.

Over the autumn we have taught (and will teach) in SSE Russia’s all MBA programs: The general management executive MBA program, the Oil&Gas executive MBA program and the strategic marketing executive MBA program. For further details, see the section “Seminars” on our website.

For more information about SSE Russia: www.sserussia.org






MAKING SCORECARDS ACTIONABLE NEWSLETTER is a bi-monthly update on our experiences and opinions on how scorecards and strategy maps can be made actionable – to help organisations realise their intended business strategies. The newsletter is compiled and distributed for free by the authors of the book “Making Scorecards Actionable – Balancing Strategy and Control”. Also make sure to check out www.makingscorecardsactionable.com to get up to date information about our seminars, to evaluate your organisation’s BSC skills according to our computerised BSC Analyser and to download presentations from the document archive.
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