XLRI Jamshedpur
March 2019
Strategy Execution
& Balanced Scorecard
Prof Saurabh Pandya
Faculty, Strategic Management, XLRI Jamshedpur
MBA – NMIMS (Mumbai) | FPM (PhD) – IIM Bangalore
[email protected] Strategy
• SWOT –
generally
What a company might do? – a starting
Opportunities and Threats point of
all
What a Strategic
company can Thinking
do?
(Strengths &
Weaknesses) • Creating
a fit
between
internal
and
external
Categorizing Decisions
How to tell which decisions are strategic, Ram Shivakumar (California Management Review)
“SWOT” ANALYSIS & “LISA” FRAMEWORK
SWOT analysis – Traditional approach
Strengths Opportunities
I E
N X
T T
E E
R R
N N
A A
L L
Weaknesses Threats
SWOT analysis – LISA framework
Strengths Opportunities
Create a “Fit”
Leverage Seize
Weaknesses Threats
Reduce vulnerability
Improve Awareness
Strategy and Purpose
• Puzzle versus Perspective & Purpose
• A firm’s unique added value defines its “Purpose”
– give direction to every part of the firm
• Purpose – will help people understand:
• What kind of knowledge is critical
• What to learn to improve performance
• Creativity, insight and the ability to make
judgements about various issues
• Keeping all the parts of the company in a proper
balance, while moving the company forward
Strategy Implementation
• Goals Execution Results
• “Philosophers are good strategists, but don’t
have the capability to translate that strategy into
action” – Larry Bossidy (GE, Allied Signal, Honeywell)
• Linking the three core processes of execution –
People, Strategy & Operations Performance
Some key points
• Execution is a discipline, integral to strategy
• Execution is the major job of the business leader
• Must be a core element of a company’s culture
STRATEGY PROCESSES
Five P’s for Strategy
• Plan – intended / deliberate
• Ploy – one-time move
• Pattern – “emergent strategy”
• Position – creating a “fit”
• Perspective – top management view
Five Ps for Strategy by Henry Mintzberg (California Management Review)
Recall a Decision / Strategy
• What was the decision / strategy? What was the
initial plan and timeline?
• New opportunities while implementing?
Influence on the original decision / strategy?
• Challenges faced in execution? Actions to
overcome them?
• Final outcome? Please note one or two major
deviations from the original decision / strategy
Emergent Strategy Process
The Process of Strategy Development and Implementation by Christensen & Donovan
ORGANIZATIONAL LEARNING &
KNOWLEDGE MANAGEMENT
Organizational Learning…
• The theory behind Knowledge Management
• Learning Organizations (levels) – combination of
• individual learning
• team / group learning
• organizational learning
• inter-organizational learning (in a network/sector)
• Learning modes
• Cognitive – changes in intellectual concepts or
frameworks, at individual or group level
• Cultural – group-based values or concepts
• Behavioural / Action-based – action followed by a
process of critical reflection
Organizational Learning…
• Two types of learning
• Single-loop – incremental changes in a framework
• Double-loop – existing theories/assumptions are
questioned and reflected on (challenging the
Theory of the Business, i.e. TOB)
• Theory of Business by Peter Drucker (HBR, 1994)
• Key assumptions in the mind of the top
management about the organization’s reality:
• Environment
• Mission
• Core competencies
Organizational Learning…
• Various types of learning in a continuum (the
effort, implications & usability keeps going up)
• Improvisational learning – one instance
• Trial-and-error learning – short-term corrections
• Experimental learning – designed for long-term
• Experiential learning – cuts across the other
forms – learning based on some experiences
(hands-on)
Effort, Implications & Usability
Improvisation Trial-and-error Experimentation
Organizational Learning
Some concepts:
• Unlearning, Learning and Change
• Unlearning antecedents
• individual-level and organizational-level
• Organizational routines
• habits or processes done without much thought
going into it
• Organizational memory
• all the learning that stays embedded within
organizations – can be used in the future
• Organizational forgetting
• deliberate vs memory loss
KNOWLEDGE MANAGEMENT
Types of Knowledge
• Explicit knowledge – Can be codified & transferred
through documents
• Tacit knowledge – Transferred through experience
and sharing (more hands-on learning)
• Creation and Transfer of knowledge
• Distilling from tacit knowledge and making it explicit
• Using the learning from explicit knowledge and
adding back (more) to the tacit
The Knowledge-creating Company by Ikujiro Nonaka (HBR)
The Knowledge Spiral (S-A-C-I)
• Socialization
• Learning/gathering the tacit knowledge
• Articulation
• Translating tacit knowledge to explicit knowledge
that can be communicated
• Combination
• Standardizing the explicit knowledge in a manual
• Internalization
• Using the overall experience to enrich the tacit
knowledge base
KM Strategies
Codification Personalization
• Re-use Economics • Expert Economics
• P2D • P2P
• (People-to-Documents) • (Person-to-Person)
• IT investment – Heavy • IT investment – Moderate
• HR strategies: • HR strategies:
• Solutions • Problem solving
• CBTs • Mentoring
• Using / contributing to • Knowledge sharing
databases
Implications of KM for Strategy…
• A company’s KM strategy should reflect its
competitive strategy
• How it creates value for its customers?
• How does that value support an economic model?
• How do the company’s people deliver on the value
& the economics?
• Asking these questions may help:
• Standardized or customised product?
• Mature or innovative product?
Do the employees rely on
• Explicit or tacit knowledge to solve problems?
Implications of KM for Strategy
• Do not isolate knowledge management, e.g. in the HR
or IT department
• Coordination requires leadership of the management
• Get the incentives right – as per the KM strategy –
e.g. rewards for adding to the database versus
rewards for giving personal advice & mentoring
• The IT investment should be appropriate to the KM
strategy – storage vs communication
• Do not straddle – but 80-20 may be applicable
• One can be the dominant strategy & the other can be
the support strategy
STRATEGY SCORECARD
(BALANCED SCORECARD)
AN INTRODUCTION
Performance Measurement
• Individual versus Corporate
• Individual
• Target-setting to Performance Appraisal process
• Corporate
• Traditional performance measures – profitability
ratios – lagging indicators
• Strategy Scorecard – leading indicators
• Can also be called Balanced Scorecard (introduced
by Kaplan & Norton in early 1990s)
• Modified scorecard versions – HR, Sustainability
Balanced Scorecard (BSC)
• Performance measurement –> Performance
management –> Strategic Management tool
• Provides a more comprehensive assessment of
the state of the organization
• Revolutionized conventional thinking about
performance metrics
• It is a misnomer that BSC is an HR tool – actually
a Strategy tool applicable to entire organization
• But HR department is generally the custodian
and implementer of this tool
• Vision & Strategy is at the core
A bridge between the present and
the future (Knowing-Doing gap)
• Addresses gap between an organization’s strategies
and their implementation by employees
• Link a company’s long-term strategies with short-
term actions
• Not a replacement for financial measures, but their
complement
• Track financial results
• Monitor progress in building the capabilities and
acquiring the intangible assets needed for future
growth
• Ability to exploit intangible assets > Ability to invest
in and manage physical assets
Financial & Strategic Objectives*
Financial Objectives Strategic Objectives
• ‘x’ % increase in revenues • ‘x’ % market share
• ‘x’ % inc. in profits (PAT) • Lower costs than rivals
• ‘x’ % inc. in EPS • Better quality & customer
• ‘x’ % inc. in dividend payout service
• ‘x’ % profit margin • ‘x’ % revenues from sale
• ‘x’ % ROE or ROCE of new products
• Broader or deeper
• Increased shareholder value
technological capabilities
(upward stock price)
• Wider product line
• Bond / credit ratings of ‘x’
• Better brand name
• Internal cash flow of ‘x’
• Stronger S&D capabilities
* Crafting & Executing Strategy (19e) by • New product introduction
Cascading nature of balanced scorecard
Four Characteristics of a BSC*
These distinctive features make the BSC more than just
a measurement system
• It is a top-down reflection of the company’s mission
(vision) and strategy
• It is forward-looking
• It integrates external and internal measures
• It helps a company focus
Thus, it serves as a means for motivating and
implementing breakthrough performance
*Putting the Balanced Scorecard to Work by Kaplan & Norton
(HBR, 1993)
BSC Constituents / Perspectives
Four constituents or Components (OMTI)
perspectives of a BSC within each of the four
• Financial constituents
• Marketing • Objectives
(Customer) • Measures
• Internal Business • Targets
Process
• Initiatives
• Learning & Growth
(knowledge &
innovation)
“To achieve External
our vision,
how should Objective Measures Targets Initiatives
we appear to s
our
customers?”
“To satisfy Internal business process
our
“To succeed Financial shareholders Objectives Measure Targets Initiatives
financially & customers s
how should Objectives Measure Targets Initiatives
s what
we appear Vision & business
to our Strategy processes
shareholders must we
?” excel at?”
“To achieve Learning and growth
our vision,
how will we Objectives Measure Targets Initiatives
sustain our s
ability to
change and
improve?”
BSC Perspectives – Questions to Ask
It is about translating vision & strategy through four
perspectives
• Financial
• How should we appear to our shareholders?
• Marketing (Customer)
• How do customers view us?
• Internal Business Process (IBP)
• What processes must we excel at?
• (to satisfy shareholders & customers)
• Learning & Growth (L&G)
• Can we continue to improve and create value?
Balancing the Scorecard
1. Rationale for using a Balanced Scorecard
2. Understand your organization’s objectives in
deciding which measures to use – narrow down
3. Dominated by historical financial information?
• Criticisms of the BSC
• Excludes suppliers and employee satisfaction
• Linkages to stakeholder management
• Important in the context of corporate governance
and sustainability
BALANCED SCORECARD
INDIA POST – PROJECT ARROW
India Post – Project Arrow – 2008-09
• World’s largest network with more than 150,000 post
offices
• Core and additional services – postal delivery (core),
insurance, banking, mutual funds etc.
• Need of the times – greater customer focus
• Project Arrow – integrated and all-inclusive approach
• Balanced Scorecard used to identify key perspectives,
decide objectives, develop metrics and collect & analyze
data accordingly
• Four perspectives that Project Arrow can be seen through
– Financial, Customer, Internal Processes and Learning
and Growth
Project Arrow – Scorecard…
• Financial
• Broaden revenue mix with new growth areas
• Retain market share in core business
• Lower operating costs and increase productivity
• Marketing / Customer
• Improve speed and reliability of core service
• Increase service levels for other businesses
• Enhance customer experience at branches and
overall customer satisfaction
Project Arrow – Scorecard
• Internal processes
• Increase productivity and operational efficiency
• Increase use of IT
• Feedback mechanism through two-way
communication
• Performance appraisal
• Learning and growth
• Build infrastructure for long-term growth
• Physical, human (social) & information
infrastructure
Project Arrow – Implementation
• Objective
• Provide service quality with global benchmarks at
lowest cost
• Pilot study in 2008-09 with 50 branches across 10
postal circles (later extended & scaled up)
• Core Strategy (data till 2012-13 approx.)
• Get the core right (around 20,000 branches)
• Modernize look and feel (approx. 2500 branches)
• Strategy Map included four perspectives –
• Customer, Linked issues, Internal processes and
Learning & Knowledge
BALANCED SCORECARD
AS A STRATEGIC MANAGEMENT
SYSTEM
Managing Strategy:
The Four Processes*
BSC can help senior managers systematically link
current actions with tomorrow’s goals
1. Translating the Vision
2. Communication and Linking
3. Business Planning
4. Feedback and Learning
*Using the Balanced Scorecard as a Strategic Management
System by Kaplan & Norton (HBR, 1996 & 2007)
Using the Balanced Scorecard as a Strategic Management System by Kaplan &
Norton (HBR, 1996 & 2007)
1. Translating the Vision
• Objectives & Measures – describe the long-term
drivers of success
• Clarify the vision
• Build a consensus around vision & strategy
• Guides to action – in operational terms – easier
for the people at the grass-roots level who are
actually responsible for executing the strategy
• “…provide services that surpass customers’ needs”
• “…provide superior service to targeted customers”
• Helps identify gaps in skills and systems
2. Communicating & Linking
• Involving multiple layers of management
• The senior executives (top management team)
can formulate the financial and customer
objectives and delegate the IBP and L&G
objectives to the next level of management
• IBP and L&G objectives should drive the
achievement of financial and customer goals, e.g.
• Customers’ expectations of on-time delivery
• Improving IBP of order processing, scheduling and
fulfilment
BSC Users and Three Activities
• Communicating and educating
• Brochures, newsletters, town halls, bulletin boards
• Should also allow employees to make suggestions for
achieving or exceeding targets
• External stakeholders?
• Setting goals and objectives
• Department and individual objectives to be aligned to the
long-term strategy
• Personal scorecard – corporate, business unit &
individual/team measures
• Linking rewards & incentives to performance measures
• Multiple objectives in compensation formula
• Weights for each objective versus Critical subset
3. Business Planning
• Setting targets
• Aligning strategic initiatives
• Link financial budgets with strategic goals
• BSC ensures that the budget supports the strategies
• Managing various change programs – e.g.
reengineering, employee empowerment, TQM, etc.
• Compete for scarce resources
• Time, attention & resources of the top management
• Establishing milestones (tangible expressions of
managers’ beliefs – Theory of the Business)
• Continually test the theory & the implementation
4. Feedback and Learning
• Real-time learning helps to modify strategies
• Single-loop learning – no re-examination of
strategies or techniques of implementation –
deviations are defects to be remedied
• Double-loop learning – produces a change in
people’s assumptions and theories about cause-
and-effect relationships
• First three processes – single-loop learning
• Vital to implementing strategy, but not sufficient
in unpredictable and turbulent environment
Strategic Learning & BSC…
• Only Budget reviews (variance analysis) and other
financial management tools cannot engage senior
executives in double-loop learning –
• They address performance from only one
perspective
• They don’t involve “strategic learning”
• Strategic learning refers to organizational learning
at the executive level, and consists of –
• Gathering feedback
• Testing the hypothesis on which strategy was based
• Making the necessary adjustments
Strategic Learning & BSC
BSC & the elements essential to strategic learning
• Articulates the company’s shared vision
• defines results that the company is trying to
achieve jointly (as a team)
• links individual and business unit
• Supplies the strategic feedback system – test,
validate & modify the strategies, i.e. the
hypotheses about cause-and-effect relationships
• Measuring the strength of the linkages among
“measures” in the different “perspectives”
• Facilitates strategy review for strategic learning
Strategy Scorecard – A Summary
• Clarify and update strategy
• Communicate strategy throughout the company
• Align unit and individual goals with the strategy
• Link strategic objectives to long-term targets and
annual budgets
• Identify and align strategic initiatives
• Conduct periodic performance reviews – learn
about and improve strategy
Strategy Scorecard or BSC helps align the
management processes and focus the entire
organization on implementing long-term strategy!
Thank You!!!
