PREVIOUS NEWSLETTERDecember, 2009
Making Scorecards Actionable Newsletter # 42 (2009) Content of Making Scorecards Actionable Newsletter # 42 (2009) » Happy New Year » Asian lecture tour » Review of Eric Brynjolfsson’s new book about how IT is reshaping the economy » Interesting BSC reading on the web » What did you think about this newsletter? HAPPY NEW YEAR Yet again we are approaching the end of an interesting year. Just to mention a few of the exiting projects we have been engaged in, we’d like to bring up the coming book by Nils-Göran Olve, which he has written together with his two academic colleagues Dr. Fredrik Nilsson and Dr. Anders Parment. The book will be released in Swedish in the middle of the spring 2010, and thereafter be released in an English translation. The book focuses on the connection between management control, on the one hand, and strategy development and strategy execution on the other. Nils-Göran Olve and Carl-Johan Petri has also been engaged in a large research project at Linköping University, funded by Ericsson, which started in the summer. The project will (at least) run until the autumn 2010 and focuses on pricing of complex products that contain an integrated solution of hardware and software. In this wrap up, of what has happened in 2009, we also want to mention Carl-Johan Petri’s article together with the head coach of Kalmar FF, Nanne Bergstrand, which was published by Bonnier in the beginning of the summer. The writing endeavor as such, was a personal treat for Carl-Johan and the end-result – the article – has been very well received by the audience. In summary, 2009 has been a very interesting year, and in addition to these achievements, we also find the every day contact with you, the readers of this newsletter and of our books, a valuable reward in it self. Please, continue to contact us with comments on our writings as well as on your own experiences from working with strategy maps and balanced scorecards. With these thankful words we would like to wish you a happy new year 2010. ASIAN LECTURE TOUR Carl-Johan Petri will run a series of seminars in Vietnam and Thailand during February and March 2010. In Vietnam we will cooperate with Inpro (http://www.inpro.vn) and run two seminars. One in Hanoi on Feb 8 and one in Ho Chi Minh City on March 1 (re-visit the section Seminars on www.makingscorecardsactionable.com for exact dates, times and places). In Thailand, Carl-Johan will teach at the prestigious Thammasat Business School’s MBA program on March 8 (http://www.bba.bus.tu.ac.th). At Thammasat, he will also run a faculty seminar to discuss similarities and differences between European and Asian implementations of balanced scorecard. Please, contact Carl-Johan directly, if you like to set up an individual meeting while he is in the region. He can be reached at carl-johan.petri@makingscorecardsactionable.com. REVIEW OF ERIC BRYNJOLFSSON’S NEW BOOK ABOUT HOW IT IS RESHAPING THE ECONOMY It has been said for a long time now: IT is an enabler of changed work practices and organizational solutions, and will not by itself something increase productivity or wealth. It follows that it should be at least equally important to mastermind changes in practices and organization as it is to acquire suitable IT. Thomas Falk and I argued already in our 1996 book IT som strategisk resurs that balanced scorecards could be useful in orchestrating such changes, and in coordinating them with implementation of new information systems. In their new book Brynjolfsson and Sauders summarize the evidence for IT’s role in the economy – cf. the book’s subtitle. It’s a slim volume, and it doesn’t say much new if you have followed the debate over the so-called IT productivity paradox in the nineties up to the more recent rise and fall of the new economy, and the current more chastened attitude to IT’s blessings. As a text, it is highly uneven: my guess is that MIT professor Brynjolfsson and Wharton School lecturer Saunders summarized the evidence, and that someone at the publisher then added down-to-earth examples to make it palatable for a more general readership. The result is a book where the level of argument varies substantially, from explanation of GDP to reference-filled discussions of complex statistical relationships. It was based on a grant from an American institute to devote a year to identifying the “main research results” in the areas of IT innovation and productivity, and it is useful to have this summarized in an accessible format. I will limit myself to the authors’ (B&S) main arguments. B&S review the impact of US investments in IT on productivity growth. They conclude that there is a time lag of four or five years between these: the 2001-2003 surge in productivity was “the delayed effects of the huge investments in business processes that accompanied the large technology investments in the late 1990s” (p xi-xii). It is the combination of such practices that produces productivity improvements: “duplicating a competitor’s success requires replicating a portfolio of interconnecting practices. …This unique combination of a firm’s practices can be thought of as a kind of organizational capital” (p xii-xiii). B&S provide a number of nice graphs of IT investment etc. One of these (p. 13) tracks profitability in IT-intense industries. The disparity between best and worse has “exploded” since the mid-nineties – “Using technology effectively matters more now than ever before” (p.10). B&S quote a graph published by Brynjolfsson back in 2000, showing the extensive spread in productivity growth for firms with similar IT investments. I interpret this as a lack of more recent equally broad work on this. The conclusion, anyway, is that what you do with your IT is much more important than how much you have. They discuss how IT can be used both for centralization and decentralization, comparing with Coase’s (1937) rationale for firms and Leavitt and Whisler’s (1958) discussion of (then) future management practices. “Business practices that enhance productivity” are the subject of a chapter which mostly reiterates various publications by Brynjolfsson and Hitt in the early 2000s. They found that seven practices determine the outcome (p. 62ff): 1. Move from analog to digital processes 2. Open information access 3. Empower the employees 4. Use performance-based incentives 5. Invest in corporate culture 6. Recruit the right people 7. Invest in human capital. Thus, their views on how to utilize IT’s potential comes down strongly in favour of a more decentralized way of operating. These are, however, complementary practices: how you combine them seems more important than any separate practice. US firms seem better at them than UK ones. The authors believe it worthwhile to measure organisational capital – a firm’s “stock of non-tradable intangible assets” (p. 77), and they “expect to see more work in this area in the coming years. Various researchers have estimated that the annual investment in these intangibles held by US businesses is at least $1 trillion” (p. iii-xiv). There are various ways of measuring: estimate spending; market values; analysts’ comparisons of earnings. To my mind, they say to little about when and how such metrics are to be used. They also want more studies into consumer surplus, arguing from basic microeconomic theory that we all benefit enormously from almost-free IT services, and that this leads to major problems in comparing standards of living and for our general knowledge about our economy. We underestimate the role of service industries, as consumer surplus increases happen more in these than for manufactured goods. Eg, both consumers and firms benefit from Google searches and similar services, but free information is not counted as output. Consequently, labour productivity and general welfare are underestimated. This leads B&S into a few short pages on pricing of information goods, bundling, information rights etc. Mentioning YouTube as an example of thousands of people contributing their innovations, they say “If history is any guide, the Internet will encourage vast amounts of innovation. The real questions are ‘Who will the winners be?’ and ‘What mechanisms will be used to compensate them?’” (p.106). The book concludes with a number or research opportunities: more measuring of digital work; measuring of welfare effects; treating organizational capital as investment; providing incentives to invest in information goods and open source-type collaborations. This final idea builds on how reputation systems and decentralized votes can determine resource allocation (p.125). As I said, a good summary but few really new ideas for those who have followed some of the debate. I find it easy to link B&S’s emphasis on metrics to the idea that scorecards and strategy maps are useful tools to guide the development of the organisational practices and investments in organisational capital that B&S claim are vital for positive effects from IT investments. For the individual organisation, I can’t see that dollar metrics of such capital that B&S advocate are really necessary – other types of information will be at least as helpful in guiding the development of “interconnecting practices” that they advocate. I’m currently involved in a project on usable IT and strategy maps, and the book has added to my conviction that tools to guide the use of IT may be of equal importance to any inherent properties of the software itself. Such properties will of course be a necessary but not sufficient condition for success. But increasingly, as buyers differentiate their use (as B&S tell us they should), and software hopefully becomes more mature, it is the combinations with how you invest in organisational capital, and how effectively you utilize your existing stock of such capital, that will determine your success! Refernce: Brynjolfsson, Erik & Saunders, Adam (2010) Wired for Innovation – How Information Technology Is Reshaping the Economy. Cambridge, MA: The MIT Press. Ca 170 pp (http://www.amazon.com/Wired-Innovation-Information-Technology-Reshaping/dp/0262013665/ref=sr_1_1?ie=UTF8&s=books&qid=1262090297&sr=8-1) INTERESTING BSC READING ON THE WEB In this compilation of interesting BSC reading on the web, we have compiled a set of articles that focus on “functional scorecards”, i.e. scorecards that address a certain function or specialty in the organization. For those of you who are interested in functional scorecards, you can find more about this in Making Scorecards Actionable Newsletter # 19. The articles we refer to below focus on marketing scorecards, pricing scorecards, purchasing scorecards and talent management scorecards. | Measuring What Matters | Pat LePont’s article helps us understand how to derive relevant measures for the more long-term goals that are set for the organization. Sometimes, the marketing scorecard is thought of as the content of the customer perspective, but in our mind most functional scorecards contain aspects that refer to all four perspectives in the scorecard. Hence, the functional scorecard has more similarities with “strategic themes” in the overarching strategy map and scorecard, than the content in one particular perspective. LePont also reminds us what to think about when indentifying the indicators for the scorecard: Don’t be lazy and pick indicators that you all ready measure (because you all ready measure them) and don’t be too ambitious in constructing analytically correct, but impossible to operate, indicators. Go for indicators that are relevant to your strategy (probably not identical with what you have measured before) and are not too expensive to measure, calculate and present. You find the full article in MediaPost here: http://www.mediapost.com/publications/?fa=Articles.showArticle&art_aid=119568 | Effective strategies to achieve "world class" pricing in distribution | Since we are working in a pricing project we are very receptive to pricing issues for the moment. Hence, we were happy to see an article that develops the content of the general marketing plan further and focuses on pricing issues in particular. The article discusses how strategy maps and scorecards can be used to assure that the company’s pricing strategy is executed in practice. Kim Long talks about the necessity to make the pricing strategy explicit and suggests that it should be portrayed in a strategy map and thereby getting the “entire organization on the same page and improve pricing execution”. Long thinks of the strategy map as both the graphical illustration of the strategy (with links between perspectives and entities), and a summary of how this can be measured: “The map should clearly state how the strategy will be measured and define key metrics and success parameters”. Finally, he elaborates somewhat on execution and introduces the concept of Playbooks (which we also talk about in our book), which is a set of pre-considered ideas about how to act when different scenarios materialize. You find the full article in Industrial Distribution here: http://www.inddist.com/article/389876-Effective_strategies_to_achieve_world_class_pricing_in_distribution.php | WellPoint Reconstructs Travel | This article focuses on the opposite function of marketing and pricing, i.e. purchasing. The article especially covers how the new Chief Procurement Officer at WellPoint, a 42000 employees health benefit provider company, Anthony Santiago made his first transformational efforts regarding procurement – in the area of travel management. In the article, procurement’s challenge to show its contribution to the organization is discussed. Most often, procurement success is measured as cost reduction, which does not address any effects on quality. By using a scorecard, procurement at WellPoint has been able to demonstrate that they have both been able to reduce the company’s travel costs AND increased how satisfied the employees are with the travel management function of the company. You find the full article in Procurement Travel here: http://www.procurement.travel/news.php?cid=travel-policy-overhaul-agency-WellPoint.Dec-09.01 | Scorecard effective talent measurement tool | In the last article, two Deloitte consultants elaborate on how scorecards can be used in law firms to align the individual lawyers’ efforts to the ambitions of the company as a whole. All too often, they argue, there is a gap between the company’s goals – that includes various development efforts, in addition to pure billing – and the lawers’ goals that often only focus on billing (in hours or in euros/dollars/etc…). Arnstein and Lee, say that law firms “can and should translate team goals into individual accountabilities to make them real and meaningful”. They continue: “If, for example, you have a strategic objective to grow the firm’s client base or to increase the range of services provided to current clients, it is important to set targets that encourage professionals to balance the time they spend on current files with existing clients (a lagging indicator) and time spent on building new client relationships (a leading indicator)”. You find the full article in The Lawyers Weekly here: http://www.lawyersweekly.ca/index.php?section=article&volume=29&number=31&article=5 WHAT DID YOU THINK ABOUT THIS NEWSLETTER? Please, help us improve this Newsletter. Follow the link below and give us some quick feedback (only three questions) on the Newsletter: http://www.surveymonkey.com/s/BKRS5Z2 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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