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February, 2008

Content of Making Scorecards Actionable Newsletter # 31 (2008)

» Celebrating the book’s fifth year in circulation

» Flattering review

» Strategy Maps at Lockheed Martin

» Don’t let compliance get in the way of management control

» Call for nominations






CELEBRATING THE BOOK’S FIFTH YEAR IN CIRCULATION

Five years ago, our book Making Scorecards Actionable was published. Over these five years it has been rewarding to see how our ideas have been picked up and used by practitioners as well as academics all over the world. Contributing to the dissemination of our ideas, is of course all the translations of the book. Thus far the book has been translated into Swedish, Spanish, Russian, Chinese, Japanese and Thai, and according to the publisher we can foresee additional translations in the near future. In a more tangible way, we can also see the result of the book’s global coverage in the list of subscribers to this newsletter and the visitors on the book’s website. Finally, we are also very happy for all the e-mails we receive from individuals, from all over the world. To us, this is globalization in practice!

Following on the release of the book we have focused on hands-on work rather than additional publishing (albeit, as you can see on the website, we continue to document our findings in academic as well as practitioner-oriented texts). Our biggest effort so far has been the engagement for the Department of Health and the NHS is the UK (for more information about this see: www.dh.gov.uk/en/Managingyourorganisation/Humanresourcesandtraining/NHSworkforcescorecard/index.htm), where we have assisted the Department in aligning workforce and general strategies by using strategy maps and scorecards. Working with such a large organization (more than 1.3 million employees) really challenges your ability to express strategies clearly (for all to understand) and create communicative feedback systems (for all to know weather the strategies are realized or not).

Most of our time has gone into the DoH/NHS-project, but we always try to run smaller projects in parallel. To us, this is particularly important, since we are interested in different applications of the scorecard concept. And, if you are only working with large organizations, your interpretation of how strategy maps and scorecards can be used will be very narrow. Therefore, we try to take the time to help smaller organizations using strategy maps to describe strategies and scorecards to assure that they are realized.

We hope this Newsletter will give you some food for thought. And, as always, we encourage you to react on what we say and give us feedback on our experiences and opinions. All necessary contact information is available on the book’s website www.makingscorecardsactionable.com.



FLATTERING REVIEW

Jonathan Becher, SVP/GM of Strategy Management at SAP (former president and CEO of Pilot Software), recommends Making Scorecards Actionable as one of the top-ten-best books about strategy and performance management. Given Becher’s experience in the field and the other books on his list, we are very happy about this recognition. In addition to Making Scorecards Actionable, Becher for example recommends: Competitive Strategy by Porter, Build to last by Collins, Strategy Safari by Mintzberg, and Strategy Focused Organization by Kaplan and Norton.

For more information, see http://alignment.wordpress.com/2007/09/30/top-10-books



STRATEGY MAPS AT LOCKHEED MARTIN

Recently we came across a story about the defence contractor Lockheed Martin’s use of strategy maps. We found the story interesting, so we decided to summarize and share some of Dan Briody’s findings with you (for more information, see CIO Insight 6/2007).

The case is gathered from Lockheed Martin’s IT-division where they started to design strategy maps and implement scorecards in 2004. Prior to that, the division had primarily been occupied with integration and consolidation projects following from the mega-merger between Lockheed and Martin Marietta in the middle of the nineties. The IT-division, consisting of some 4000 employees serving the corporation’s 140000 full-time employees, had managed to consolidate numerous databases, transactional and e-mail systems and other infrastructure components into the one homogenous environment. By 2004, this enormous task was completed, and the division was no longer sure what to focus on.

Ed Meehan, vice president of operations in the IT-division – and a 30-year company veteran – was given the grand task to find out what to do next. And this was not a small task: The division had no strategy – all prior attention had gone into the consolidation of the corporations heterogeneous IT-environment. Meehan was faced with three tremendous challenges: to identify the division’s new goal, define a strategy to attain that goal and sell that vision to an IT organization that had no concept of strategy!

Meehan’s first step was to gather all managers reporting to him for an initial workshop, late 2004. The group’s first discussion focused on what kind of identity to aim for. In order to focus the discussion, Meehan referred to three different strategy books, each suggesting a different strategy: product leadership, low-cost leader and complete customer solution. The group quickly agreed on the third approach – complete customer solution – as the most relevant strategy for them.

Pamela Santiago, Senior Manager (Strategic Planning) in the IT-division, was appointed project manager, and she and her eight-member team was assigned the task of designing the new strategy and describing it in a strategy map. Her initial step was to contact the business units in the corporation and ask them to describe their strategies, in order to have a starting point for what the IT division should focus on. Her intention was to compile the corporate intentions and then align the IT-divisions business with this. The effort, however, was unsuccessful since no of the business units were willing to spend time on describing their strategy to the IT-division. Santiago felt sad about the business units’ reaction, since it indicated their view of the IT-provider. Instead of being perceived as a true business partner, they were regarded as support personnel who took care of the pluming and infrastructure.

Albeit, Santiago didn’t give up. With some help from Meehan and a cheerful manner, she managed to get input from the business units, which was used as the foundation for the IT-division’s new Complete Customer Solution strategy.

Santiago’s next – and probably biggest battle – was to enthuse the employees within the IT division for the new strategy. It was not an easy task. The attitude towards the effort was at best neutral. At worst, hostile in disguise. Employees throughout the organization paid lip service to the effort, and hoped that if they did so, it would blow over and they could go back doing business as usual.

So what was the key to getting buy-in from the nonbelievers? Perseverance, plain and simple. Santiago's crew was relentless in messaging the new strategy, unveiling a massive marketing effort. An effort that lasted for more than two and a half year: "It was the perseverance and energy and passion of eight people," says Santiago of her team. "We did not let up one iota. We produced more memos, more documents than they had ever seen. We went out and personally trained 4000 employees face to face.... We could have asked middle managers to pass along the training and messaging, but we knew if we did not do it ourselves, the message would be skewed. And we needed the passion. We were selling Tupperware, but we did it with all the passion in the world. It was a testament to the tenacity and energy of a small team", says Santiago according to Dan Briody.

The effort to engage all employees in the new strategy was a tremendous job. Especially, since the default attitude to the project was negative. One important explanation to the success was that Meehan demonstrated his belief in the effort. Even though he sometimes thought that the project would fail he kept these doubts to himself, knowing that even the slightest sign of capitulation would give managers an excuse to quit the program.

Another important principle why the strategy map survived such a long implementation project was that the IT-division accepted changing corporate requirements. Instead of sitting passive – arguing that it was not worth doing anything, because the requirements on the division was changing all the time – Santiago and her team constantly kept up to date with corporate initiatives. When new such initiatives were launched, the IT-division’s strategy (map) was updated to reflect this: "We would literally lift the verbiage out of the corporate campaigns and roll it in, so you wouldn't get the feeling that our campaign was just the flavor of the month."

According to Mehaan and Santiago, the strategy map and the balanced scorecard effort has resulted in tangible results in three different dimensions: 1) Better IT Service delivery – 15% productivity savings and 10% productivity improvements; 2) better IT to Business alignment – 15% reduction in non-essential IT initiatives and almost a doubling of the customers’ perception of alignment (from 2.6 to 4.2 out of 5); and 3) Business Growth – 10% business increase.

Hence, strategy maps and scorecards have made a difference to Lockheed Martin. But not because the BSC method and structure is foolproof, but because Mehaam, Santiago and their colleagues made a special effort to make all IT staff buy in to the new vision and the strategy. It took several years of hard communicative work, but the results stands for them selves.



DON’T LET COMPLIANCE GET IN THE WAY OF MANAGEMENT CONTROL

Dr. Petri and professor Olve recently submitted an article to a Swedish business publication on the topic of corporate governance. In their view, too much attention is paid to various compliance issues, rather than the more important issues of assuring that the company’s business strategy is realized.

Corporate governance, as a concept, has to many become synonymous with auditors’ and the board’s reporting to the company’s shareholders – that the business operates according to current rules and regulations – and how routines and procedures are designed to compile and analyze information about this in a correct fashion.

In our article we argue that this interpretation of governance is too narrow and risk to loose sight of what is really important for the company to meet the owners’ expectations, i.e. create maximum returns in the long run.

OECD’s definition of corporate governance is: “Corporate governance involves a set of relationships between a company's management, its board, its shareholders and other stakeholder. Corporate governance also provides the structure through which the objectives of the company are set, and the means of attaining those objectives and monitoring performance are determined.” Hence, Corporate Governance is not only an instrument to assure compliance, but also an important management control tool to set goals for the company and assure that these goals are reached.

Management control focuses on three different issues: (1) Defining the company’s goals, (2) agreeing on how to reach these goals and (3) monitoring performance to assure that the company is working according to the strategy (and taking necessary action if they don’t). Shareholders and board members are responsible for making sure that this happens.

We believe Balanced Scorecard is a good dialogue instrument for the management team, to use in discussions about goals and strategies and for monitoring performance. With the board and owners as well as with the employees. Therefore strategy maps and scorecards should be an important – maybe even the most important – component in any corporate governance initiative.

Often risk management, i.e. the procedures to know and reduce risk and fraudulent behavior, is described as the essence in corporate governance. But risks, as such, are inherent traits of any venture, and most of what a company does can be regarded as financial risks. Therefore we find it important that the board and the owners understand the logic of the chosen business strategy – to understands its inherent risks – as well as monitors how the strategy is executed. This is where strategy maps and balanced scorecards is a powerful dialogue instrument.

Somewhat simplified, we refer to these issues in two dimensions. We distinguish between whether the company complies with legal and contextual regulations, and whether the business model is consciously defined and its execution is monitored. Or, put in other words: whether the company is doing things right and whether it is doing the right things. Of course both aspects are important. Hence, to create shareholder value, it is not enough to do things right – i.e. comply with present regulation. Management must also assure that the company is doing the right things. Combining these two dimensions, gives us a matrix.

Of course, the preferred position is up to the right, where performance is monitored both according to compliance and degree of strategy execution. All too often, however, most interest is focused on compliance with legal and contextual regulations, i.e. up in the left corner of the matrix. In practice, this means that illegal or fraudulent behavior is prevented, but less attention is paid to the execution of the chosen strategy.

The position down to the right is interesting. It corresponds to a situation where managers and employees act according to the business strategy, but exploits business opportunities that are illegal or at least break ethical and social rules that the company has promised to honor. Management’s desire to win contracts or cut costs can for example result in bribing or exploitation of child labor, and management closes their eyes to this behavior or neglects to gather information about it.

The worst case is, of course, the position down to the left in the matrix, where management neither assures that the strategies are executed nor that the company complies with existing regulation.

But is it realistic that the board shall assure that the company operates in the position up to the right – both doing the right things and doing things right? Is it part of the board’s responsibilities? Well, of course it is not possible for the board to control every detail in the operation. But, if the strategy emphasizes certain customer segments or certain product groups, it is our opinion that the board should make sure that the management control systems within the company signal the importance of this to those who are responsible for realizing it.

In our opinion, strategy maps and balanced scorecards are effective instruments to create these dialogues between owners, board and management, and therefore they should be included in any corporate governance initiative – to assure that the right things are done and that things are done right.



CALL FOR NOMINATIONS

We are looking for advanced BSC users. If you have come across a company that uses strategy maps and scorecards in an interesting way, please let us know. Either send a mail to carl-johan.petri@makingscorecardsactionable.com or stop by our web site and fill out the nomination form under “Tell us about advanced BSC users” (in the right column).






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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