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April, 2008

Content of Making Scorecards Actionable Newsletter # 32 (2008)

» The quickest way to test how strategy-grounded your management control is

» What can business leaders learn from professional football coaches?

» Take aways from the book ”Made to stick” by the Heath brothers

» Nuggets on the web

» What did you think about this newsletter?



THE QUICKEST WAY TO TEST HOW STRATEGY-GROUNDED YOUR MANAGEMENT CONTROL IS

Here is what to do: Take your most recent monthly performance report. Send it to a friend with some strategy and management control experience, and ask her to describe which strategy your unit or organisation is following (based on the impression she gets when she glances the performance report): What story do the indicators tell? If your friend is able to identify the basic traits of your strategy, you have a performance report that is aligned with your strategy. If, on the other hand, your friend doesn’t get a clue about the strategy as such – only about the outcome of your efforts – there are probably some potential for improvements!

Voila – that’s a quick way to asses how strategy-grounded your management control information is!



WHAT CAN BUSINESS LEADERS LEARN FROM PROFESSIONAL FOOTBALL COACHES?

“After every game, we watch the match on video to review and document our performance in detail. To summarise the performance – whether we played good or bad – we do not count number of goals. We count and compare number of ‘goal opportunities’ since that is the only way to capture whether we have played our game or not”, says Nanne Bergstrand, coach of Kalmar FF, the team who won the Swedish Cup and finished second in the series 2007 and is expected to win the 2008 season.

Number of goals does not say anything about whether the team has played its game or not. The opponent can score on themselves or the team can get a lucky penalty kick in their favour. “In the long run, we can not rely on chance or luck. To be successful we need to develop and leverage our own competencies. Hence, measuring goal opportunities, instead of goals, is the only way for us to judge whether we are on the right track or not”.

When it comes to strategy execution in organisations we recognise a similar situation. A company can be financially successful in the short run (cf. winning a single game) even if they do not act according to their business strategy. But if the company wants to implement its strategy and business plan – and stay successful in the long run – management and employees can not only rely on indicators that only summarise outcome. To assure continuous attention to the strategy the company needs to evaluate what they do to drive performance (equivalent to goal opportunities, which is measured in the development-, process and customer perspectives) as well as its outcome (goals, i.e. financial results).

Many executives like to compare their organisations with professional sport teams – and the analogy may seem relevant. A lot of positive connotation can be retrieved from the sports domain and in our own discipline – how to develop management control systems to assure that business strategies are realised – for example Stephen Covey (the author of “The 7 Habits of Highly Effective People” as well as “The 8th Habit”) uses a football metaphor to show the ridiculously low goal- and strategy awareness in most organisations: In a recent study, only 37% of the employees said they have a clear understanding of what their organisation is trying to achieve, only one in five was enthusiastic about their organisation’s goals and so on… Covey continues: If these figures would be the same in a football team only 4 of the 11 players on the field would know which goal is theirs, only 2 would care and all but 2 players would, in some way, be competing against their own team members rather than the opponent. So, can business men learn something from the sports domain?

Certainly! Managers can learn a lot from professional sport coaches, especially regarding their focus on the process, i.e. what is driving performance, rather than allocating all attention to the outcome (i.e. focusing on goal opportunities instead of goals). But, when using the sports domain as a source of inspiration, it is important to recognise some limitations. The comparison should, first and foremost, inspire managers to reflect on their responsibilities – as coaches – not suggest that their team – the employees – are like professional football players (cf. how much a football player trains compared to how much he plays: approximately ten training hours per match hour. And vice verse, how many days a normal employee attends training: typically a couple of days per year. The difference is 10/1 compared to 1/100, i.e. factor 1000!)

Hence, we believe that managers in organisations can learn from professional sport coaches, and we would like to contribute to this learning. A couple of years ago we interviewed a senior analyst at the English Premier League club Bolton to learn more about their interest in performance drivers and real outcome.

Now, as the Swedish football series has just commenced, we wanted to learn from one of the best teams in Sweden (by the way, a country that has delivered players and coaches like Sven-Göran “Svennis” Ericsson, Fredrik Ljungberg and, of course, Zlatan Ibrahimovic). Therefore we contacted Nanne Bergstrand, head of Kalmar FF who was quoted in the beginning of the text, and asked him how he is focusing his team on its game and strategy, rather than getting carried away by single results.

To start with, Mr. Bergstrand distinguishes between “results-minded” and “results-obsessed” players. From time to time all individuals risk becoming results-obsessed, i.e. wanting to win a single game at the expense of everything else. Most typical at the expense of the team’s long term strategy. A results-minded player, on the other hand, understands the relationship between the chosen strategy and its long-term effects. According to Bergstrand, winning a game, neglecting to follow the strategy, is dangerous since this may infuse uncertainty in the team and direct the players away from the agreed way-to-play. In the long run, this growing uncertainty on how to play, is the biggest threat to a team, since a shared strategy is the only way to become successful.

Most of us have probably come across similar situations in our business life: skimming the market today by over-selling – cannibalising on future sales; under-investing in product and process development – jeopardising future performance and so on. “Results-obsessed” managers strive to show good financial results in the short run, whereas results-minded persons accept periods of lower profitability as long as it is obvious that the invested resources (money that did not show up as profit this period) will yield better results in the future.

To create “results-minded” employees, you have to make them believe in the chosen path to the future – to accept periods of worse outcome (i.e. loosing one game) in return for better performance in the long run. To do so, we need evidence that signals that we are improving the processes, which will eventually lead to better outcome. Measuring goal opportunities is one way to capture the improvement of our processes. The manager’s responsibility is both to have faith in the chosen strategy and to show faith in the strategy. By underlining process achievements (goal opportunities in the football setting; development results, process improvements and customer activities in a business setting), the manager signals the importance of the strategy and helps the players to become results-minded instead of results-obsessed.

One common misunderstanding about professional sport coaches is that they are not restricted to the resource-base they have, i.e. that they can buy new players if needed to carry out the kind of game they want to play. Of course that is not the case. To start with, any organisation needs its legacy and tradition and – all ready for that reason – the coach can not change too many players at the same time. And for more mundane reasons, no team has the financial resources to acquire all the players they dream about. Hence, every coach and every manager have to, as Alfred Chandler said many many years ago, align strategy and resources (structure). The strategy must simultaneously stretch and go beyond what the organisation can easily deliver today and, at the same time, remain reasonable given the resources they have. This is the intellectual challenge for the coach as well as for the manager – to analyse what the team is capable of and what the external expectations are. The strategy expresses how the organisation should act to meet these expectations, given the resources available.

According to Mr. Bergstrand this effort requires that the players are involved in setting the goals. By engaging them in a discussion on the ambitions for the coming season, he makes sure that the goals are internalised and made their own goals. As an external observer you would probably not think of football training as a workshop where the players sit together in small groups in a conference room talking about what to reach for during the coming season (not very different from a typical business planning off site with the management team, except that all employees participate instead of just the management team). But these goal-dialogues are important exercises during the pre-season training period.

Borrowing from the management literature, Mr. Bergstrand argues that the bottom-up planning approach is the only realistic way to set goals. Defining goals at the top and then cascade them through out the organisation will never make them internalised among the players.

Meeting Nanne Bergstrand confirm our assumption that the business environment can learn a lot from the sports domain. Still, the lessons we learned, were not the lessons we expected to. All too often business leaders use the sports metaphor to indicate what the employees should do, to become more like “obsessed” sports professionals: “to give all you have got”, “to fight for the team”, “to reach for the stars…”. But this is not the take away from the discussion with Mr. Bergstrand. On the contrary. As a manager, you should instead learn something about your own behaviour as a coach:

[1] Stop focusing so much on results (since that does not reveal anything about whether you have followed your strategy). Instead, measure your equivalent of goal opportunities.

[2] Have and show faith in your strategy and teach your “players” to trust it by celebrating process improvements (achievements that will drive performance), instead of only celebrating when you happen to reach the final goal.

[3] Create your strategy, based on your resources. Stop dreaming of what you could do, given …this…and…that. And finally,

[4] Invite all “players” in your organisation when setting goals and ambitions, instead of cascading superior and remote goals to lower levels in the organisation.

If you manage to act according to these simple principles, you will act as a professional football coach and make your employees Results-minded instead of Results-obsessed.



TAKE AWAYS FROM THE BOOK ”MADE TO STICK” BY THE HEATH BROTHERS

To make scorecards actionable, it is absolutely essential that all employees in the organisation can relate to them: that the employees are aware about the scorecards’ content, that they feel invited in discussing them and that they are kept up to date on the organisation’s performance according to the scorecards. In our book “Making Scorecards Actionable” we present six “critical design issues” that we believe are essential when implementing and using scorecards, contributing to realising the business strategy. The first issue refers to the alignment between perfromance management and strategy (described in “strategy maps”) and the second issue refers to the dialogue processes where the content of the scorecard is discussed throughout the company.

We have recently read a book on dialogues and communication that has made quite an impression on us; “Made to Stick” by the brothers Dan and Chip Heath (Chip Heath is professor of organisational behaviour at Stanford Graduate School of Business).

In the book, the brothers ask the simple question “What makes some ideas stick”, i.e. why are some ideas understood and remembered and change the way we think or act when others don’t?

To give us an idea about how sticky an idea can be, Dan and Chip re-tell some classical urban legends that most of us – regardless where in the world we live – have heard before (even if they may vary in some details). What is it that make some ideas stick and continue to be re-told without any marketing assistance or instrumental aid (they just continue to spread around the globe), when other ideas (e.g. different corporate messages like mission statements, core values or marketing pay offs) don’t seem to stick at all – even though companies spend millions of dollars communicating them to all employees.

Based on this questions – and what characterises ideas that stick without any administrative assistance – the Heaths suggest what we can do to make ideas more sticky: The ideas should be Simple, Unexpected, Concrete, Credible, Emotional and tell a Story (S-U-C-C-E-S).

Simple: We think of the strategy map as a “shopping window” for the strategy and business plan. Hence it should be illustrated in a way that attracts attention and creates interest for the “complete” strategy. All too often, strategy mapping ends up documenting all aspects of the strategy, making the map too complicated and impossible to understand. The Heaths brothers use the term “curse of knowledge” to explain why we keep adding more information to a presentation than is needed to convey the core message. When you know something, it is impossible to remember how it was not-to-know. It is like trying to unlearn how to ride a bike once you have got it. The strategy map should be a Simple description of the most important strategic bets in your strategy. Not a complete description of everything of strategic importance!

Unexpected: To attract attention, it is clever to make a twist; to present something that is not “common sense”. Nanne Bergstrand’s statement above – “We judge success based on goal opportunities, not scored goals” is an example of a counter intuitive statement that makes people listen. A similar statement, that a CEO who we have interviewed, have used is “The scorecard should not be on management’s agenda .......The scorecard should *be* the management agenda!”.

Concrete: One reason why strategies and strategy realisation is rarely systematically monitored is that they are too abstract. So, when translating the business plan into a strategy map, and then translating this map into tangible and relevant indicators in a scorecard, you make the strategy and how to recognise whether we act according to it, concrete.

Credible: The indicators in the scorecard are not credible by themselves. Especially since they compete for attention with traditional financial indicators that have been used for hundreds of years and we have learned about at business school. In addition to that, these financial indicators are even audited by external experts and legitimised by a legal framework (rules on how to keep books and disclose performance information to the market and various authorities). Hence, it is very important that management pays attention to the novel indicators and demonstrates that these indicators are used by management as their framework to understand whether the organisation is executing the strategy and performing according to expectations, or not.

Emotional: The financial language, with its indicators and goals, are rarely emotional. Few employees are prepared to invest their soul and professionalism in the quest for “shareholder value”. Instead, a grabbing mission statement should be used in the top of the strategy map – describing something that the employees feel for: “Improve quality of life for…” or “Create happiness for…”, i.e. the raison d'être for engaging in this particular organisation, instead of any other.

Story: It is far easier to remember a story, than a stack of concepts. Hence, you can no expect the strategy map to be self explanatory. Instead, the map needs to be accompanied by a spoken story (which can be stored in the map itself when it is distributed via the Intranet) or should be told when the map is presented at internal meetings. The story should follow the sequences embedded in the map; “If we develop the right products and competences, our processes will grow increasingly effeicient, and our customers will recognise this and continue to buy from us. Buy selling more to existing customers, instead of chasing new ones, we will grow closer to them and yield better financial results, which can be re-invested in our own development as well as please our owners”.

“Made to Stick” is an excellent book and the authors really practice what they preach. After finishing the book, you have been boosted with ideas on how to communicate your messages. Ideas that will stick with you, even after you have put the book in the book shelf, and continue to change the way you think and act. Heck, that is a good book, isn’t it. For more information about it, check out the book’s web site: http://www.madetostick.com.



NUGGETS ON THE WEB

Earlier in this Newsletter we referred to Stephen Covay’s comparison between organisations’ goal and strategy awareness, and football team’s ditto. Watch him in this video clip at youtube.com and learn more about his perspective: http://www.youtube.com/watch?v=LHHj5Q7ep3k

Our core message, in everything we say and write, is to assure alignment between strategy and management control. Sometimes these issues can get a little bit abstract. Therefore we were very pleased when we found this very concrete example of alignment: between Subaru’s true values (a passion for cars) and the way they present their performance information. The report has been designed as a dashboard in a car, which intuitively connects to the employees’ frame of reference. For more information about the case, have a look here: http://dashboardspy.com/dashboard-screenshot-subaru-branding-dashboard.html



WHAT DID YOU THINK ABOUT THIS NEWSLETTER?

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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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