Building a Cascading Programme

Transcription

1 Point of View Building a Cascading Programme Barnaby S. Donlon, former Palladium consultant How can you be sure that implementing the Balanced Scorecard will promote strategy execution within your organisation? In an increasingly service-based economy, where even manufacturers of commodities need customer-intimacy strategies to compete, employees at all levels need to know how they support the organisation s overall goals. A proven way to make this happen is by cascading Balanced Scorecards throughout the organisation. But deciding how many and how far to cascade is not always obvious. Tackling these questions sometimes reveals an organisational strategy that is not thoroughly articulated or one whose structure doesn t conform to its strategy. Cascading decisions can make or break your BSC effort.

2 While the Balanced Scorecard is designed to describe, measure and help manage strategy, cascading it enables all of these things throughout the organisation. 1 In essence, cascading is about aligning the organisation to the strategy regardless of the organisation s structure. It involves developing and aligning each scorecard to a higher-level scorecard through strategic objectives, measures, targets and initiatives that can be used to track contributions to overall company goals. In this sense, cascading is much more than an exercise in communicating strategy; it represents a commitment among teams and individuals to focus resources and activities in pursuit of broad organisation-wide priorities. 1 Because strategy is generally formulated at the top, we use the term cascading to refer to the dissemination of the BSC throughout the organisation. But this dissemination, as this article contends, is not always top-down. Language purists will excuse our use of the term to refer to any direction of BSC dissemination. While every organisation can benefit greatly from cascading, the gains don t happen quickly or without significant effort. In fact, most executives with cascading experience will tell you that implementing a cascading program can be one of the most ambitious efforts you will ever undertake. Fortunately, companies that have successfully cascaded scorecards have regarded it as a major change programme from the beginning. They clearly identified the benefits they sought: organisation-wide implementation of a new strategy, a platform for communicating priorities and a mechanism for obtaining feedback on how the strategy is performing in the field. So where do you begin? In our work with all types of organisations, we ve identified two prerequisite steps organisations must take to successfully roll out a cascading program. 2 Building a Cascading Programme

3 1. Define the broad strategic agenda. Since every scorecard must be built with the goal of aligning with a higher-level vision, it is critical to start by defining a broad strategic agenda for the organisation. The strategic agenda is often distilled into strategic themes, which serve as a foundation for developing socrecards at all levels. Examples include Operational Excellence, Customer Management and Innovation. While these shared themes sound generic, at lower levels in the organisation they can actually be interpreted in a specific, actionable way. In effect, every scorecard answers the question, How do you influence or contribute to each of these broad themes? Generally speaking, it is the responsibility of corporate to set the strategic agenda, and how specifically the strategy can be described will likely depend on the type of organisation. For example, a financial holding company, which exerts little control over its disparate business units, will be able to describe corporate strategy only in terms of broad themes. However, an operating company, which has a high level of control over its business units, will probably be able to identify specific objectives (within themes) for the entire organisation. The more specifically strategy can be described at the top, the less guesswork there will be in building strategy maps and scorecards at lower levels. 2. Assess the current organisational structure. The next step in the process involves analysing how well the organisation is currently structured to deliver on these key strategic themes (and perhaps objectives) that corporate has identified. Since strategy should dictate organisational structure not vice versa each unit must be viewed through the lens of the strategic agenda to determine if the organisation is currently configured in a way that optimally supports strategy execution. A consumer bank we once worked with had just adopted a customer-intimacy strategy, but it wasn t until the bank began to consider a cascading approach that it realised its organisational structure was still product-focused. Recognising that internal politics and culture were more firmly rooted than the new strategy, the bank reorganised according to region so it could operate with a consistent value proposition to customers in all of its markets. This change enabled the bank to successfully cascade geographically, which would not have been possible under the previous organisational structure. Once your organisation has developed an overarching strategic agenda and there is consensus that the organisation is optimally structured for strategy execution, you can now turn to the questions: How many scorecards should we build and how many levels down should we cascade the BSC? Building a Cascading Programme 3

4 Selecting the Right Cascading Approach There are four general levels to which the BSC can be cascaded: Corporate, where the strategic agenda is developed; Major business units and support functions, where unique value propositions are managed; Divisions and departments, where unique operating processes are managed; and Teams and individuals, where key personal development goals are managed. functions. At lower levels divisions, departments and lesser functional groups (subsets of major support functions that typically don t touch the entire organisation, like quality control) they build abbreviated ( matrix-style ) scorecards that merely highlight those objectives that have direct influence on the parent scorecard s strategy map (Figure 1). Since no strategy formulation is needed for abbreviated scorecards, they tend to take half the time to develop and implement. In recent years, we have observed that organisations build different types of scorecards at each of these levels. Most organisations build full scorecards with strategy maps in areas with unique strategies, like business units (BUs) and major support Parent Objective Reduce Costs Parent Measure EBIDTA Functional Measure Budget vs. plan (actual and % variance) Parent Scorecard Provide Excellent Service Customer satisfaction rating (for service) Number of service-related issues Improve On-Time Delivery Percent of orders shipped on time Percent of orders shipped on time Build Core Skills Share of employees completing training programme Number of employees moved from Coach to Reward Figure 1: This abbreviated BSC highlights the objectives of the lower-level unit or department that have direct influence on the parent scorecard s strategy map. 4 Building a Cascading Programme

5 Next, you must decide on a specific approach to developing and implementing scorecards. There are three basic options from which to choose: Top-Down. The most common cascading approach, top-down involves starting at the highest level possible and then working down through the organisation. Each unit waits until a parent scorecard has been created before building its own scorecard. This approach works well in operating companies and organisations where products and services are sold to a common customer type. However, it is less effective in holding companies or multibusiness companies because of the diversity of customers and products. Middle-Top-Down. Organisations whose business units have a high degree of autonomy and authority (e.g., holding companies) tend to do better with a middle-top-down approach. The business units, unlike corporate, are customer facing and directly manage a value proposition. Here, a highest-level scorecard may be derived later (if necessary) from those developed at the unit level. Ideally, the executive team at the corporate level actively oversees and guides the development of the unit scorecards to ensure coherence of companywide strategy and synergy even if it opts out of its own corporate-level card. Bottom-Up. Occasionally we observe cascading programs that are implemented from the bottom up. In this case, leaders of the organisation develop the strategic agenda and then reach out to employees on the front lines who work with customers every day and who therefore have the greatest influence on performance. Using the themes as a guide, teams of front-line employees develop BSCs that specify how they will achieve the organisation s broad goals. This approach is appealing for two reasons: 1) every unit in the organisation can begin developing scorecards at the same time and 2) people at lower levels are empowered immediately through their involvement in strategy formulation. It works well in knowledge-intensive organisations such as professional service firms (consulting, accounting, law) where the companies main assets are their people. In such environments, imposing a specific strategy downward on such typically independent employees is often met with resistance. 2 Considering the rise in knowledge-based organisations, we may see an increase in the bottom-up approach over time. 2 See David H. Maister s Managing the Professional Service Firm (New York: Simon & Schuster, 1997). This approach is also common with shared service functions such as IT and HR, both of which play key strategic roles in the organisation. Building a Cascading Programme 5

6 Developing a Project Plan Since cascading often requires many months (or even years) to complete, it is wise to develop a project plan that details the sequence and timing for developing and reporting on scorecards. Similar to a strategy map itself, the plan serves as a road map for how a vision (in this case, a vision of organisational alignment) will be achieved. For a medium-sized operating company with several business units, it can take a year to cascade from the top to the bottom. The Importance of Leadership, Feedback and Creativity Cascading is all about spreading the BSC program throughout your organisation to ensure strategy is executed. Where you are a BSC project manager or the CEO, you must decide what kind of cascading strategy makes the most sense for your organisation, given its type, culture and management style. You will want to tailor a plan that exerts the right level of control and motivates everyone to perform to their fullest potential. So keep in mind: For lower-level scorecards to be successful, higher-level leaders need to play an active and ongoing supporting role. An effective way for executives to get engaged in strategy execution at lower organisational levels is to periodically review the scorecards and ask probing questions: What are you trying to achieve, and how will this differentiate you from the competition? How will you know when you have been successful? What initiatives are you pursuing to achieve your performance goals? Jack Welch, the former CEO of GE, was known for asking such questions. His active engagement in strategy execution resulted in a remarkable degree of focus at all levels of the organisation. 3 Regardless of where cascading starts, reporting, analysis and decision making must flow in both directions. A Balanced Scorecard program is all about learning, communicating and changing. New information often leads to decisions about what needs to change, so scorecard iterations are inevitable. And with linked scorecards in place, iterations or changes at one level may need to be cascaded to other levels. While the changes may frustrate some people, they are a positive sign. They show that the strategic feedback loop is working. There s no single right way to cascade your BSC, so don t be afraid to think outside of the box. One of the earliest adopters of the BSC, the City of Charlotte (North Carolina), cascaded by building scorecards around themes as opposed to organisational units. The executive team predicted that this approach would encourage people to cooperate across boundary lines to achieve a common purpose which it did. Other organisations cascade by customer type, business process, product or geography. It all depends on how you want to use the scorecard to effect change. Clearly, cascading is more art than science. But once you and your team agree on the fundamentals your organisation s strategic agenda and organisational structure you ll be well on your way to developing the cascading program that s best for your organisation. 3 See Larry Bossidy and Ram Charan s Execution: The Discipline of Getting Things Done (New York: Crown Business, 2002) for more information about how senior managers can engage the workforce in a culture of strategy execution. 6 Building a Cascading Programme

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