The strategy-focused organization

The strategy-focused organization

The strategy-focused organization

Robert S. Kaplan and David P. Norton

The Balanced Scorecard was originally proposed to overcome the limitations of managing with only financial measures, which report outcomes but do not communicate the drivers of future performance. The scorecard provides a framework for looking at a strategy from four different perspectives: financial, customer, internal business processes, and learning and growth.

As early adopters managed with scorecards, the speed and magnitude of their results revealed the power of the process. These companies aligned and focused their resources – their executive teams, business units, human resources, information technology, and financial resources – to their organization's strategy. A new culture emerged, centered on the team effort to support the strategy. In fact, these companies created a new kind of organization based on the requirements of their strategy. They used the Balanced Scorecard to place strategy at the center of their management processes (see Exhibit 1).

Exhibit 1 The principles of a strategy-focused organization

There are five key principles common to all successful Balanced Scorecard companies:

1. 1.

   Translate the strategy to operational terms. Strategy cannot be executed if it cannot be understood. By using a framework called a "strategy map," each measure of the Balanced Scorecard becomes embedded in a chain of cause-and-effect logic that describes how intangible assets become transformed into tangible customer and financial outcomes.

2. 2.

   Align the organization to the strategy. Organizations are traditionally designed around functional specialties such as finance, manufacturing, and sales. Communicating and coordinating across functional lines is often difficult. Executives in strategy-focused organizations replace formal reporting structures with strategic themes and priorities that enable a consistent message and consistent set of priorities to be used across diverse and dispersed organizational units.

3. 3.

   Make the strategy everyone's everyday job. Strategy-focused organizations use the Balanced Scorecard in three distinct processes to align their employees to the strategy: communication and education, developing personal and team objectives, and incentive and reward systems.

4. 4.

   Make strategy a continual process. By using a double-loop process that integrates management of tactics and the management of strategy, strategy-focused organizations are able to adapt their strategies as the world changes or the strategy matures. Three themes are important in implementing such a process: linking strategy and budgeting by setting stretch targets and scorecard-based strategic initiatives, often replacing fixed budgets with rolling forecasts; closing the strategy loop with feedback systems linked to the scorecard; and testing, learning, and adapting strategy based on feedback from scorecard measures.

5. 5.

   Mobilize change through executive leadership. If those at the top are not energetic leaders of the process, change will not take place, strategy will not be implemented, and the opportunity for breakthrough performance will be missed. Initially, the focus is on mobilization and creating momentum. Then, the focus shifts to governance: executives must establish a process to guide the transition to a new performance model. Finally, and gradually over time, a new management system evolves.

This practical and proven framework helps solve a universal management problem – not just how to formulate strategy, but how to make it work. It can help today's leaders shape their companies to meet the challenges and reap the rewards of a new competitive era.