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Linking Strategy to Operations: Process Models and Innovation
INSIDE THIS ISSUE
By David P. Norton and Randall H. Russell, Director of Research, Palladium Group, Inc.
Given current trends, can healthcare systems realistically hope to reduce costs while maintaining (and improving) the quality of care? Absolutely, say Robert Kaplan and Ann Nevius, leader of Palladium’s healthcare practice. The secret? Having the right measurement and management tools in place that link strategy and operations.
Linking strategy to operations is where the proverbial rubber meets the road. But how exactly do organizations operationalize the strategy —that is, translate strategy into new work processes? Over the past two years, the authors teamed with many organizations (and their Strategy Management Office professionals) in working groups to develop a “how to.” They sought an approach—a mix of tools, methodologies, and organizational structures—that could be used to define how operational performance must be changed to achieve strategic objectives. This article provides a framework that describes how this linkage occurs, focusing on the first two elements of the approach. The ultimate value of the Balanced Scorecard approach to strategy execution is its ability to focus people on the critical few objectives that comprise an organization’s strategy. Without focus, all options seem equally important, and much energy is squandered pursuing low-priority goals. With focus, scarce resources can be channeled to the points of greatest strategic leverage. Most management systems lack this focusing ability. New value is created only when new approaches consistent with the focus are put in place. With the strategy map as a guidepost, organizations that align resources (budgets, IT investments, human capital) to the strategy can realize profound performance improvements—and indeed create new value. But the greatest value creation occurs when strategy is aligned with operational processes. It’s not enough to articulate a strategic objective, such as “Reduce the product development cycle by 50%.” Someone must figure out how to do it. Only when the strategy is translated into new work processes that can achieve its strategic objectives can we say that strategy is being executed. The Strategy Model As shown in Figure 1, the approach begins with a description of the strategy, encapsulated in the strategy map. Four features of the strategy map provide the connecting links to operational processes. 1. A holistic view: The strategy map provides the essential big picture, preventing an organization from getting lost in the details. 2. Focus via strategic themes: The strategy is decomposed into three to five strategic themes that are managed in parallel by different teams (theme teams) with different resources. 3. Targets and performance gaps: The map helps quantify the performance that defines the degree of desired improvement. 4. Initiatives: The map clarifies the new programs necessary to close the gap. Continued on next page
Commentary ..............................................7 The Power of Strategy Execution in Healthcare
Case File ......................................................8 Breaking Down the Silos at SMDC Health System Seven years after being named to the BSC Hall of Fame for Executing Strategy, Minnesota-based SMDC has not only sustained its BSC program, but has also sustained the impressive performance that won it the award. SMDC demonstrates that cost effective and quality care are not mutually exclusive.
Strategy Management Officer..............11 Driving Transformational Change: Strategy Execution at Merck In 2005, the giant pharmaceutical company crafted a new strategy that called for fundamental changes to its business model. Its visionary new CEO recognized the need for new mechanisms to implement these sweeping changes. Key among them: the Strategy Realization Office (SRO), Merck's strategy execution and governance entity. SRO Director Vittorio Nisita explains.
Business Intelligence/ Performance Management ..................14 Why You Need a Business Intelligence Competency Center Business intelligence (BI) and performance management (PM) systems and processes are too important to be managed ad hoc or by the department or functional area. Analogous to the Office of Strategy Management, the Business Intelligence Competency Center serves as a central body that coordinates, plans, sets policy, and otherwise governs BI and PM throughout the enterprise.
It’s here! The Balanced Scorecard Hall of Fame Report 2009. For details, and to purchase, visit www.harvardbusiness.org and search by title.
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More than just subsets of the overall strategy, strategic themes provide the architecture around which the strategy is designed. Most organizations have an Operational Excellence theme, a Customer Relationship theme, and a Growth Through Innovation theme. Each is based on different processes. For example, Operational Excellence is based predominantly on such processes as supply chain and service delivery, while Customer Relationship relies on marketing, sales, and service. More specifically, within a Customer Relationship theme, a strategic objective such as “Increase customer excitement” could be linked to the operational process used to generate brand messaging around differentiated product functions that target customers find especially appealing. To execute the strategy, separate efforts are required to analyze and redesign the appropriate operational processes and make any modifications within them. For example, the skills required to redesign supply chain productivity would be quite different from
those required to build new customer partnerships. Any good strategy should identify a performance gap—the gap between the current and desired states. Increasingly, organizations are referring to the gap in their vision statement: e.g., “To become a top-quartile performer in the next five years.” Quantifying the vision adds the dimensions of speed and magnitude to the strategy. The strategic themes provide a framework for disaggregating this high-level gap into components that (a) show the strategy’s feasibility, and (b) provide operational targets. In Figure 2, a highlevel value gap (“Increase net income by $100M in 5 years”) is decomposed into three themes. The Operations Excellence theme, focused on reducing cost per customer, identifies a gap of $25 per customer per year that must be closed, while the Customer Relationship theme identifies a gap of $100 in revenue per customer. The theme-based planning gaps provide a bridge to the operational processes. The Operations
Figure 1. Linking Strategy and Operations: The LSO Model THE STRATEGY MODEL
THE OPERATIONS MODEL
The Strategy Map
Ideation
Input
Function Function Function Function Output
Lean Manufacturing
Blue Ocean
Best Practice Analytics
Business Intelligence
Th Theme T Team
IT Platform
1. Holistic view
Experience Co-Creation
Theme 3 Theme 2
Innovation Techniques
Theme The eme 1
Process Model
Balanced Scorecard Report Editorial Advisers Robert S. Kaplan Professor, Harvard Business School David P. Norton Director and Founder, Palladium Group, Inc. Publishers Robert L. Howie Jr. Managing Director, Palladium Group, Inc. Edward D. Crowley General Manager, Newsletters, Harvard Business Publishing Executive Editor Randall H. Russell VP/Research Director, Palladium Group, Inc. Editor Janice Koch Palladium Group, Inc. Circulation Manager Bruce Rhodes Newsletters, Harvard Business Publishing Design Robert B. Levers Levers Advertising & Design Letters and Reader Feedback Please send your comments and ideas to
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[email protected] Copyright © 2009 by Harvard Business School Publishing Corporation. Quotation is not permitted. Material may not be reproduced in whole or in part in any form whatsoever without permission from the publisher. To order back issues or reprints of articles, please call 800.668.6705. Outside the U.S., call 617.783.7474. Harvard Business Publishing is a not-for-profit, wholly owned subsidiary of Harvard University. The mission of Harvard Business Publishing is to improve the practice of management and its impact on a changing world. We collaborate to create products and services in the media that best serve our customers—individuals and organizations that believe in the power of ideas. Palladium Group, Inc. is the global leader in helping organizations execute their strategies by making better decisions. Our expertise in strategy, risk, corporate performance management, and business intelligence helps our clients achieve an execution premium. Our services include consulting, conferences, communities, training, and technology. The Palladium Balanced Scorecard Hall of Fame for Executing Strategy™ recognizes organizations that have achieved an outstanding execution premium. For more information, visit www.thepalladiumgroup.com or call 781-259-3737.
2. Focus via strategic themes Trend: Sales Actuals/Fcst vs. Plan
3. Targets and performance gaps
Actuals Forecast Plan
4. Initiatives Operational Dashboards Web 2.0
A cross-organization team
The Strategy Model’s four features inform the Operations Model, and vice versa, in feedback fashion. The Operations Model (repeated for each strategic theme) contains (1) the process model that decomposes each business process; (2) innovation techniques for devising breakthrough approaches for advancing strategy; (3) the theme team, which transcends silos and enables cross-business strategy management; and (4) the IT platform, which supports the design and implementation stages.
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Figure 2. Example of Disaggregating the Value Gap
The Value Gap $
t
Increase net income by $100M in 5 years
Strategic Theme
Measure Target
Operational Excellence
Customer Relationship
Growth Through Innovation
Improve productivity and customer loyalty through operational excellence
Enhance demand through customer partnerships
Add and retain high-value customers
Annual cost per customer
Annual revenue per customer
Number of highvalue customers
From $100 to $75
From $200 to $300
From 200,000 to 600,000
Strategic themes provide a framework for disaggregating the high-level value performance gap. Together, these theme-based planning gaps provide a bridge to the operational processes.
Model, described below, defines how organizations actually close these gaps.1 Linking strategy to operations takes place in three stages. In the first stage, design, the organization analyzes, tests, and selects new ways of working and managing that will close the strategic performance gaps. This stage is both analytic and innovative; the organization is searching for new ways to conduct business. In the second stage, installation, the new approaches are implemented, tested again, and reinforced. (Installation is a change management stage, so these new approaches, which cross traditional organizational boundaries, must be championed by senior management.) In the third stage, operations, the new approaches are absorbed and become the new standard way of doing business. The Operations Model The Operations Model shown in Figure 1 identifies the four basic tools and structures for executing
these three stages for each strategic theme. The design stage involves a search for new solutions that will require new processes. In our process model we propose a structured approach to decomposing business processes (detailed in Figure 3). Innovation techniques comprise the toolkit for finding the design that will close the performance gap. The installation stage involves a political process of negotiating acceptance of the changes the new processes require, accomplished by using an executive-sponsored crossorganization group—the theme team.2 The operations stage represents a return to stability—the new “normal”—built around the new processes. Some organizations retain their theme teams to support the steady-state operation; others disband them and establish other formal cross-organizational vehicles to serve their purpose. New IT platforms will be needed to support the new management processes in the steady state.
The Process Model All organizations consist of a set of operational processes through which the business model is executed. Yet despite the efforts of the 1990s business process reengineering movement, many organizations still don’t clearly understand their operational processes. While many now pay closer attention to those processes they consider critical to their success, even the critical processes are seldom well understood, let alone documented. Thus, when the time comes to introduce changes to the operating model—as dictated by the strategy—organizations usually must conduct a round of examination and documentation to accurately understand the current state of these processes. Once processes are documented, modifications can be made to change operational performance. The big question, though, is how prepared is the organization to undertake this effort? Which model your organization uses to decompose—or map—its processes depends on the nature of your business and your strategy. Some schools of thought advocate mapping only the core processes— those focused on creating and delivering products or services. Others believe that all processes— including management, support, and ancillary processes—should be mapped. The all-encompassing view, first espoused by Michael Porter (with his value chain) and reengineering guru Michael Hammer, identifies primary activities (such as inbound logistics, operations, marketing, and sales) and support activities (such as procurement, HR management, and technology development).3 Figure 3 provides a schematic example of a process model (process decomposition) and the steps involved in making specific changes dictated by a shift in strategy. We see four levels
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of decomposition, starting from the highest-level description of the organization’s value creation model. In level 1, strategic themes are defined, along with the highlevel processes they imply. Taking one theme, Develop New Customers, level 2 shows the five mega processes that create value in this theme, starting with evaluating the market opportunity and ending with achieving customer satisfaction and revenue collection. This sequence includes sales preparation, sales execution, order fulfillment, services delivery, and supplies management. A strategic objective in this theme was “Improve the sales preparation process.” A company that has already described the processes available to support this objective
is well positioned to look more closely at the level 3 processes that drive this objective. Market segmentation, for instance, is singled out based on an analysis of sales performance in certain market segments. At level 4, the specific activities that comprise segmentation analysis are identified. The key performance indicators that track segmentation serve as a leading indicator of sales preparation performance. If the market segmentation activities are not running smoothly, it is likely that segmentation analysis and reports won’t be timely or sufficiently useful to drive the next step, sales execution. Market segmentation, especially in a dynamic environ-
ment (e.g., retailing), must be doable on an as-needed basis. Useful, actionable analysis requires that the analysts have the right capabilities and the right information. By drilling down still further, to level 4, an analyst can see the specific activities required to achieve the strategic objective “Improve the sales preparation process.” In general, levels 1 and 2 help establish the strategyoperations linkage, while levels 3 and 4 identify the specific operational activities that must be emphasized to execute the strategy. Innovation Techniques Finding breakthrough approaches in support of the strategy requires the use of innovation techniques. However, while we can define
Figure 3. Decomposing a Mega Process
The Value Gap D e s i r e d a s t F o re c
Level 1 Themes and Performance Gaps Sample theme: Develop New Customers
Market Opportunity
Sales Preparation
➡ ➡
Market Segmentation
Input
Sales Execution
Solution Definition
Order Fulfillment
Channel Planning
Services Delivery
Operations Alignment
Supplies Management
Demand Generation
Customer Satisfaction and Revenue Collection
Level 2 Process Group (Value Chain)
PDCA Analysis
Level 3 Process
Function Function Function Function Output
Level 4 Activity/Function
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This process model breaks down the sample theme Develop New Customers to reveal the supporting mega process (sales preparation) and subprocesses related to a strategic objective, focusing on the example “market segmentation” and ultimately, the individual activities that comprise it.
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perfectly useful methodologies, tools, and frameworks for this purpose, in reality, finding new solutions is an unpredictable process. We sometimes use the term “AMO” to describe this phenomenon: if you focus on a problem, apply sound methodologies, and have good people dedicated to the task, sooner or later A Miracle Occurs (AMO). This is the moment when a flash of insight happens and a better way emerges. While the timing of the miracle may be unpredictable, we have found that creating a rich problem-solving environment accelerates discovery. How to create such an environment? Through the use of multitiered performance models and appropriate innovation techniques. Earlier we argued that strategy execution should be divided into several parallel and complementary efforts. Strategic themes provide the structure for doing so. In practice, and to varying degrees, different strategic themes will require different classes of performance models and innovation techniques. Innovation, of course, applies not just to products and services, but more broadly to any process that advances organizational strategy. So, for example, new product themes can benefit from such approaches as ideation and Experience Co-Creation, while operational excellence themes might draw upon such techniques as Six Sigma and Lean Manufacturing. The challenge for those managing these strategy execution programs is to be aware of the many available innovation techniques and to know which ones will best help create AMO for a given situation. Following are several innovation techniques that we have observed in practice. All of these approaches are well documented, and the literature (particularly of process improvement and quality techniques) includes many case examples.
Quality Management. Quality management is a vast and fairly mature field, although new permutations and other enhancements continue to emerge. (You could say that the field of continuous improvement is continuously improving!) From the beginning, quality management has focused on reducing defects. It has three main components: quality control, quality assurance, and quality improvement; thus, quality management focuses not only on product quality, but also on the means to achieve it. Different schools of quality management emphasize these different approaches. Six Sigma, a relatively recent addition to this body of knowledge, contributes robust analytical techniques to quality management. Individuals can be certified in the discipline, thus documenting their familiarity with the techniques and ensuring that the contributions they make to the management process stand a better chance of delivering results. Other techniques include Quality Function Deployment, the House of Quality, Kaizen, Lean Manufacturing, catchball, and others. More recently, combinations of these approaches have emerged. One combination, Lean Six Sigma, blends two quality disciplines to achieve outcomes that neither individually was designed to accomplish. Lean Six Sigma for services, for example, is a business improvement methodology that maximizes shareholder value by achieving the fastest rate of improvement in customer satisfaction, cost, quality, process speed, and invested capital. We mention these quality approaches not to endorse one approach over another, but by way of urging the strategy execution team to become familiar with them in order to know which ones are best suited to the organization’s specific business and strategy execution needs. Any
operational efficiency/effectiveness strategic theme can achieve the benefits of quality techniques, from lower costs and shorter cycle times to better product quality. Among the most noteworthy innovation techniques for strategy formulation and product development are Experience Co-Creation and Blue Ocean Strategy. Experience Co-Creation (ECC). This relatively new technique is a powerful approach for conceiving and developing new products and services with the customer’s collaboration and commitment. Developed by C. K. Prahalad and Venkat Ramaswamy, its basic premise is that the customer (current or prospective and, ideally, profitable) is eager to collaborate with its preferred supplier in designing a new customer value proposition that provides a superior end-user experience throughout the entire life cycle. This technique breaks down the barriers that typically stand between customer and supplier; the two engage in active dialogue about the customer’s desires and how the supplier can meet them. Various methodologies have been developed within ECC to structure this dialogue and achieve feasible recommendations. By being actively involved in this process, the customer ultimately becomes more invested in the new value proposition and thus tends to be more committed to helping the new business model succeed. So far, ECC has yielded successful outcomes for Starbucks, Toyota, Apple iTunes, Google, Procter & Gamble, and many others.4 Blue Ocean Strategy (BOS) is another contemporary technique that is gaining momentum. Conceived by W. Chan Kim and Renée Mauborgne,5 BOS is primarily a strategy development technique that represents the simultaneous pursuit of differentiation and low cost. Its aim is
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not to help companies outperform the competition in their existing industry, but to create a new market space, or “blue ocean,” thereby making the competition irrelevant. Ultimately, it still requires would-be users to identify the right process mix needed to deliver its promise. Because of this it is likely that other techniques (e.g., Quality Function Deployment, Experience Co-Creation) will be needed to think through the process requirements for the new strategy. Nevertheless, the BOS approach is useful when an organization suddenly finds itself in new competitive waters or when it proactively seeks a new market space in which to compete. Examples of BOS adherents include Southwest Airlines and Nintendo. (The Ford Model T and Chrysler’s first-generation minivan provide good retrospective examples.) Other innovation techniques include ideation, best practices, and business intelligence. Ideation consists of a broad range of techniques to generate new ideas for future product and service offerings. Best practices allow organizations to learn from their own past successes and those of other organizations that have perfected specific approaches to similar operational process challenges. Business intelligence refers to any skills, technologies, applications, and practices used to help a business acquire a better understanding of its commercial context. (See article, p. 14.) Any of these techniques may be leveraged to facilitate the innovation of existing processes or to identify new processes that need to be introduced to the current operational system as dictated by the strategy. Theme Teams Strategy is a cross-business endeavor. Most organizations are structured around functions and departments that focus on narrow,
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specialized activities. However, managing by functional silo is inconsistent with the crossfunctional nature of strategy management. This conflict is one of the primary reasons why strategy execution so often fails. A better organizational approach is needed. Many organizations are turning to “theme teams” to bridge this structural gap. BSR readers are aware that a theme team is a small group of individuals who are given the responsibility and resources to oversee the execution of a crossbusiness strategic theme. Strategic themes require strong executivelevel leadership to secure adequate resources and ensure continued visibility, action, and review. It is also important that theme execution remain linked to overall strategy execution. Typically, a member of the executive team is assigned sponsorship of the theme team to preserve this linkage and to empower the theme team to make the needed changes. The theme team generally consists of a program manager who is responsible for the team’s day-today functioning, along with fulland part-time specialists. In the next issue of BSR, we will explore in detail how theme teams function —and how they boost the odds of successful strategy execution. IT Platform The linkage of strategy and operations requires a new environment for managing. The level of information detail required and the frequency of intervention by the theme team increase by orders of magnitude. Information technology plays two expanded roles. First, business intelligence applications support the design stage of the program by enabling information gathering (e.g., external scans), analysis, and insight development. Data warehouses that support best practice analytics and such collaborative technologies as Web 2.0 are examples of approaches
that support the broader goals of innovation and AMO. Second, IT enables the implementation of the new operational processes that emerge from the design stage. For example, operational dashboards, supported by data management infrastructures, typify the IT platform needed to support the new operational environment defined by the theme team. We’ll also discuss these approaches in greater detail in the next issue. The Locus of Value Creation The ultimate form of strategic organizational alignment is achieved when strategy is linked to operations. Only when the strategy is translated into work processes that provide value to the customer can one say that strategy is being executed. Other steps in the alignment process— such as cascading the strategy map and scorecards, making strategy everyone’s job, and aligning resources to enable strategic initiatives—are all preconditions to achieving this final step in the alignment sequence. In this article we have introduced a framework to describe how this linkage occurs. Future articles in this series will show how this framework is used in practice. 1. R. S. Kaplan and D. P. Norton, with E. A. Barrows, “Developing the Strategy: Vision, Value Gaps, and Analysis,” BSR January–February 2008 (Reprint #B0801A). 2. R. S. Kaplan and C. Jackson, “Managing by Strategic Themes,” BSR September–October 2007 (Reprint #B0709A). See also R. S. Kaplan and D. P. Norton, The Execution Premium (Harvard Business Press, 2008). 3. Another process model, developed by the American Productivity and Quality Center (APQC), is the Process Classification Framework. This generic enterprise process model identifies a whole taxonomy of operating, management, and support processes. 4. V. Ramaswamy and F. Gouillart, “Co-Creating Strategy with Experience Co-Creation” (Reprint #B0807C); and L. de Varvalho, with Z. Santos, “Co-Creating a New Value Proposition at Real Tokio Marine Vida e Previdência” (Reprint #B0807D), both in BSR July–August 2008. 5. For an overview of strategy development techniques (including Blue Ocean Strategy and Experience Co-Creation), see R. S. Kaplan and D. P. Norton, with E. A. Barrows, “Formulating (and Revising) the Strategy,” BSR March–April 2008 (Reprint #B0803A).
Reprint #B0907A
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The Power of Strategy Execution in Healthcare By Robert S. Kaplan and Ann Nevius, Vice President and Healthcare Industry Practice Leader, Palladium Group, Inc.
objectives, which can be measured using available data sources and made available for timely and accurate decision making • Management meetings that enable the proper balance between all targets without allowing suboptimal or inappropriate decisions and behaviors
Progress in the prevention and treatment of diseases has contributed to remarkable improvements in life expectancy and the quality of life in recent decades. With these improvements, however, an ever-increasing share of the U.S. national income goes to healthcare—nearly 20 cents of every dollar spent.1 • A portfolio of strategic initiatives designed to help achieve Can healthcare systems reduce spiraling costs while still targeted performance while maintaining the quality of care? Yes, say Kaplan and Nevius, mitigating risk through a disciplined planning and strategy execution system. Healthcare executives around the world are struggling with a common challenge: how to manage the growing gap between healthcare needs and financial resources. Aging populations in Europe, North America, and Japan require more and better care, and the cost of that care is exploding— it’s forecast to nearly double in the United States between 2006 and 2016, from $2.1 trillion to $4.1 trillion. Although healthcare systems differ from country to country, their leaders all face exceptional challenges in the years ahead. Successful leaders will need to promote strategic alignment, enhanced decision making, and better resource allocation if they are to achieve the required dramatic improvements in both productivity and clinical outcomes. This fundamental tension between the pressure to reduce costs and the demand for higher-quality medical care often leads to uncoordinated and inefficient efforts and investments. Leaders struggle to develop the right strategic objectives and business targets without stretching the organization too far, which can lead to risky behavior and suboptimal decision making. Other industry realities exacerbate these challenges. In the U.S., reimbursement seldom rewards innovation and efficiencies. While the quality movement is now well established in the industry, few healthcare leaders effectively use
strategic planning and execution. Thus, healthcare organizations are increasingly doing things right, but not necessarily doing the right things. Furthermore, most healthcare organizations operate in silos, where an “us versus them” mentality is common between administration and medical professionals. Clinical data reside in disparate databases and business data are hard to access and link. Performance is not transparent. Our experience with healthcare organizations has taught us that, as with all other enterprises, organizations that use proven measurement tools and a comprehensive management process to link a clearly defined strategy to day-to-day operations can simultaneously reduce risk, improve their financial performance, lower their professional liability costs, and, most important, improve the clinical outcomes for their patients. The key components of a sound planning and strategy execution system include the following: • An explicit strategy with clear strategic objectives that can be easily communicated to employees as well as to external stakeholders, including patients and families, referring physicians, academia, and the local community • Key performance indicators (KPIs), derived from the strategic
St. Mary’s/Duluth Clinic Health System (SMDC), profiled on p. 8, is a prime example of an organization that uses these methods and has achieved excellent financial and clinical outcomes during the past 10 years. Its leadership team has used the Balanced Scorecard management system to articulate strategy, forge an enduring partnership between administrators and physicians, and enhance coordination. SMDC demonstrates how to achieve business and fiscal discipline while improving how it accomplishes its mission. And its success has been sustained through periods of rapid expansion and regime change. First profiled in these pages in 2001, SMDC was named to the Balanced Scorecard Hall of Fame in 2002. In a world of mergers, leadership change, and industry change—one buffeted by all manner of external and internal events —the performance of even successful organizations, such as those in the BSC Hall of Fame, can fluctuate. SMDC shows that by managing with a consistent strategy execution culture, organizations can sustain success and strive for new goals, regardless of the changes and challenges they face. n 1. From a government report prepared by John Poisal, deputy director of the National Health Statistics Group (part of the actuary department in the Centers for Medicare and Medicaid Services), published February 21, 2007 in Health Affairs. Please see bottom of p. 10 for reprint information.
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Breaking Down the Silos at SMDC Health System By Lauren Keller Johnson, Contributing Writer
A healthcare organization expanding its service offerings under growing financial pressure turns to the Balanced Scorecard to break down silos. Thanks to its longtime disciplined use of the BSC, SMDC Health System has boosted collaboration between administrators and physicians (groups traditionally at odds) on key strategic goals. And it has enhanced coordination between its many hospitals, clinics, and service lines amid its growth through mergers and acquisitions. This 2002 BSC Hall of Fame winner is a prime example of the sustained success that organizational alignment and consistent execution can bring. The year 1997 was a turning point for St. Mary’s Hospital in Duluth, Minnesota, and Duluth Clinic (also in Duluth). President Bill Clinton had signed the Balanced Budget Act of 1997 (the Act), which called for a massive cut in spending ($116.4 billion) for Medicare—the largest decrease in funding in the program’s history. This was worrisome news for healthcare organizations—particularly teaching hospitals (as funding for graduate medical education would be reduced) and urban hospitals (which would receive less money for treating lowincome and indigent patients). Knowing that the financial constraints imposed by the Act would erode their margins over time, St. Mary’s Hospital and Duluth Clinic merged, with the goal of beefing up their economic strength while simultaneously enhancing the quality of the services they provided. St. Mary’s was a 350-bed tertiary care hospital; Duluth Clinic was a 390-physician multispecialty group practice that had 25 clinic sites serving northeastern Minnesota and northwestern Wisconsin. Going into the merger, both institutions were in good shape financially. But the newly combined entity—St. Mary’s/ Duluth Clinic Health System
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(SMDC)—set out to provide a complete continuum of healthcare services to patients in northern Minnesota and to fulfill a common mission: “Bring the Soul and Science of Healing to the People We Serve.” Prescription: BSC But SMDC needed a mechanism for translating the lofty ideals in its new mission into a working strategy. Enter the Balanced Scorecard, which then-CEO Peter Person, MD, advocated adopting in 1998 after SMDC struggled unsuccessfully on its own to formulate a strategic plan. Following 18 months of gaining familiarity with the BSC and striving to construct a scorecard, the organization (with Palladium’s help) by 2000 had built its first enterpriselevel strategy map and scorecard. (See “Mapping SMDC’s Strategy.”) Dr. Person and his executive team led the process, with strong support from SMDC’s board of directors. They analyzed the internal and external forces shaping the organization’s fate—such as trends in patients’ use of healthcare services, developments in SMDC’s market share and its costs and reimbursement figures, imminent changes in federal and state legislation, and challenges related to the organization’s workforce,
such as retention and recruitment of specific employee groups. By July 2004, the corporate team had cascaded the HQ strategy map and scorecard down to 10 scorecards for SMDC’s various entities, clinical service lines, and departments. Viewing Healthcare as a Business The BSC helped everyone at SMDC start thinking like businesspeople —a mindset shift essential for making core operational improvements in the face of mounting financial pressures. As Person explained in a 2001 article in Balanced Scorecard Report, “We’re not trained that healthcare is a
Mapping SMDC’s Strategy The themes and objectives in SMDC’s strategy map reflected SMDC’s three types of customers: • “Primary Care Patients” (with the objectives of excellent service and personal relationships) • “Specialty Care Patients and Referring Physicians” (leadingedge technology and expertise) • “Payers” (innovative programs and low-cost service) The themes in the internal process perspective directly supported the customer types: • “Provide Outstanding Customer Service” supported primarycare patients. • “Continually Develop Clinical Excellence” linked to specialtycare patients and referring physicians. • “Strive for Operational Excellence” supported payers. The overarching financial objective “Build a strong financial base” linked to SMDC’s vision statement: “SMDC is a valuesdriven, integrated organization [that] will be recognized for excellence in customer service, quality patient care, financial strength, and support of community health.”
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business. In fact, it has very much become a business. [Nurses or doctors] certainly don’t like to think of it that way. [With the scorecard] we now have a strategy —on one page—that everyone in the organization can understand.” 1 From 2001 to 2004, this ability to view SMDC as a business became even more important, as the organization embarked on a series of partnerships, mergers, and acquisitions to improve its economic health and grow its offerings. In 2001, SMDC joined informally with the Minnesotabased Benedictine Health System (BHS) (a long-term care organization operating 40 facilities in seven states) to consolidate debt, and acquired Miller-Dwan Medical Center (a 120-bed specialty-care hospital in Duluth). In 2004, SMDC and BHS formalized their relationship by creating Essentia Health, whose goal was to simplify the “healthcare continuum” for patients by making it easier for them to transition between different types of care facilities.2 During these earlier years of expansion, the BSC helped SMDC align its many different components behind the overarching strategy, coordinate business processes and care across facilities, and capture cost and revenue synergies. The organization began demonstrating important gains, including a $20 million improvement in operating performance as well as stronger cash flow. For example, SMDC went from having 17 days’ to 150 days’ cash on hand—which gave it the resources to fund its growth strategies. Equally vital, satisfaction among hospital and clinic patients also began to rise, thanks to strategically focused internal process improvements. Such improvements included a redesign of scheduling processes in the orthopedic department to ensure that
patients are seen within 24 to 48 hours by physicians specializing in medical orthopedics, instead of immediately by a surgeon. Treatment plans are created, and patients are referred to surgeons only if necessary. This has reduced the time a patient needs to wait for an orthopedic appointment (which used to be as long as three weeks). It also makes more effective use of surgeons’ time and skills. Forging Partnerships Between Physicians and Administrators
Scorecard program since 2000, “If you don’t get physicians on board with a strategy, you won’t get anywhere. In an integrated healthcare organization, physicians aren’t ‘owned’; they’re integral members of the business.” Dr. Person adds, “Physicians are not only an important human capital asset in our business; they also have a huge influence on the rest of the organization. [So] targeting their development simultaneously with that of their administrative partners is key.”
Adding the new strategic objective But it was SMDC’s decision to raised a number of questions, unite physicians and managers such as “How do we make behind the enterprise strategy this engagement happen?” and that had the biggest impact. “How do we measure progress In any organization, functional toward this objective?” The senior silos can crop up owing to conteam proposed a revision of flicting priorities, interests, and the decision-making structure at perspectives. In corporations, SMDC. SMDC paired administrators these silos may arise around with physician leaders to form marketing and sales, manufacturdecision-making teams, or dyads, ing and engineering, or finance that would be jointly responsible and product development. In for their department’s financial, healthcare, it’s the physicians and clinical, and service results—such administrators who have tradition- as cost of care, patient satisfaction, ally locked horns over how things should be done. “If you don’t get physicians on board Physicians often with a strategy, you won’t get anywhere. assume that practicIn an integrated healthcare organization, ing fiscal constraint can put the quality physicians aren’t ‘owned’; they’re integral of patient care at members of the business.” risk. Administrators believe that fiscal restraint is necesand quality of care. Previously, sary to ensure that resources are employees with concerns about available for investing in continued patient care or the performance improvement in care. of a business process would speak SMDC set out to get physicians and to clinic administrators rather than physician leaders of departments. administrators working together Now they would bring their coninstead of at cross-purposes. In cerns to the dyad. Each dyad’s 2005, Dr. Carl Heltne, the Duluth decisions were jointly made and Clinic President, proposed adding were communicated as such. “This the strategic objective “Engage sent the message that the two physicians and administrative types of leaders were working leaders as partners for success” together,” notes Possin, “and that to the learning and growth peradministrators weren’t simply spective in the enterprise strategy map. Why the focus on physicians? telling physicians how to run their operations.” According to Barbara Possin, who has headed SMDC’s Balanced
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Balanced Scorecard Report
The establishment of dyads began at the very top of the organization. For example, SMDC paired its chief administrative officer with the organization’s president, who is a physician, to make decisions related to overall management of the organization—such as setting budget goals and prioritizing projects and initiatives. And it paired an administrator with the head of each of SMDC’s major care divisions. For instance, the VP of Surgical Specialties pairs with the physician Chief of Surgical Specialties. Subspecialty physician section chairs, such as those of urology and cardiovascular surgery, pair with their corresponding managers. “In the past, physician leaders were elected, volunteered, or took turns functioning in these roles,” says Possin. “But now there’s a job description. Physicians apply and go through an interview. It’s a highly sought-after and valued role.” SMDC’s senior team also realized that engaging physicians in helping to support the organization’s success would require educating them about business management. To that end, SMDC created its own leadership academy, which administrator/physician dyads attend together. Subjects taught at the academy include Leadership Philosophy, Dialogue, and Management Tools (with a focus on using strategy maps and Balanced Scorecards to manage strategy). The BSC serves as a powerful tool for the leadership dyads, says Dr. Person. “[It gives them] a chance to provide input into what’s important at the level they’re responsible for, and [helps] them understand how their work area relates to the overall strategy of the organization.” Signs of Health The administrator/physician dyad structure has led to a
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notable increase in physicians’ engagement in the organization, as measured by workforce surveys. For instance, performance on this metric rose from 3.96 (on a fivepoint scale) in 2005 to 4.43 in 2008, which is “the highest it’s ever been in our organization,” Possin notes. Engagement improved even as the organization moved to cut costs, including adjusting salaries and discontinuing a special dining room previously available for physicians. Higher physician engagement scores translate into another strategic objective important to SMDC: recruiting and retaining talent—two tasks that have become especially challenging in primary care. As Dr. Person points out, the ability to attract and keep high-quality primary-care physicians is a key component of SMDC’s strategy to deliver quality, coordinated care that is also cost-effective. Such physicians play a critical role, especially in rural communities, when it comes to caring for patients and serving as a referral source to SMDC’s specialists. And they’ve been increasingly difficult to recruit, as many physicians now pursue subspecialty training and are migrating to urban rather than rural areas to practice. For these reasons, recruitment of primary-care physicians became an important metric. Initiatives to support performance on this metric included developing a rural medicine teaching track in cooperation with the University of Minnesota’s medical school and creating a fourth-year obstetrics fellowship to support rural medical practice. As a result of these efforts, SMDC was able to recruit 36 primary-care physicians in 2008, just six fewer than its goal of 42. Many of these newly hired physicians are practicing in rural areas of northern Minnesota and Wisconsin.
A Positive Prognosis Impressed by the gains it has made by using the Balanced Scorecard, SMDC has moved to infuse it even more broadly and deeply into the organization. For example, when the organization brings new executives on board, it immediately acculturates them to the BSC by explaining that “this is the way we manage and execute strategy,” says Dr. Person. The BSC has also been extended within Essentia Health. The enterprise-level map has been cascaded into a strategy map, approved by Essentia’s board, for each hospital and clinic. SMDC plans to cascade maps and scorecards down to the individual physician-leader level, perhaps eventually linking incentive compensation to scorecard performance. Essentia also plans to accelerate its installation and use of electronic health record technology, which should further enhance the efficiency and effectiveness of its healthcare services. SMDC has demonstrated that breaking down silos can position an organization to deliver topnotch service despite ever-tighter financial constraints. In today’s troubled economy, that’s promising news for leaders in the many other industries confronting similar challenges. n 1. “Sustaining Margin, Mission, and Vision at St. Mary’s/Duluth Clinic,” an interview with Dr. Peter Person, CEO, BSR July–August 2001 (Reprint #B0107C). 2. In 2008, Innovis Health of Fargo, North Dakota, joined Essentia, and BHS left to become the largest Catholic long-term care system in the United States, returning to its earlier name. Essentia’s holdings today include 14 hospitals, more than 50 clinics, and facilities in nine states. Essentia employs 14,000 people and has net operating revenue of $1.3 billion a year. Dr. Person is its CEO.
Reprint #B0907B (This reprint includes the Commentary article on p. 7.)
Look for the BSR Healthcare Reader, to be published in Q3 2009, at www.harvardbusiness.org.
O F F I C E R
By Lauren Keller Johnson, Contributing Writer, with Vittorio Nisita, Senior Director–Strategy Realization Office, Merck & Co., Inc.
S T R AT E G Y
Driving Transformational Change: Strategy Execution at Merck
M A N A G E M E N T
July–August 2009
Based on a presentation by Vittorio Nisita at the Palladium Group North American Summit, November 2008, in San Diego, California
For a pharmaceuticals giant experiencing unprecedented change, the Strategy Realization Office (its Office of Strategy Management) leads the charge to execute a bold new strategy. The office’s role: strengthening governance processes and building an infrastructure for strategy formulation and execution. In 2005, the pharmaceutical industry was facing a number of challenges. Throughout the world, governments and managed-care companies were making drug reimbursement more difficult, shifting costs to price-sensitive consumers. Patents protecting an entire generation of successful products were set to expire, and innovation—the engine of growth in the industry over the previous two decades—was becoming costlier and riskier. Physicians and other healthcare providers were growing tired of the increasingly frequent visits from sales reps. And a series of high-profile product withdrawals had prompted heightened regulatory scrutiny. New Jersey–based Merck, one of the world’s largest pharmaceutical companies, was not immune to these pressures. The firm had experienced its share of late-stage product failures and, looking ahead to 2010, was expecting to lose around $10 billion in revenues due to the patent expirations of key products. Taken together, these issues led industry analysts to rank Merck near the bottom of Leading Health Care companies1 in terms of expectations for near-term revenue and earnings-per-share growth. A Time for Change Appointed to lead Merck in early
2005, CEO Richard T. Clark took over with the realization that the company would need a new strategy if it were to regain its leadership position. Despite tough times for the company and the industry alike, Merck was well positioned to do so. With a global workforce of approximately 60,000 employees and a wide range of innovative medicines and vaccines sold in more than 150 countries, the company was continuing to invest heavily in research and development. Moreover, its values, first articulated in a 1950 speech by then company president George W. Merck, were crystal clear: “We try never to forget that medicine is for the people. It is not for the profits. The profits follow—and if we have remembered that, they have never failed to appear.” Plan to Win The new strategy, dubbed “Plan to Win,” called for fundamental changes to Merck’s business model. It involved creating a global human health organization—that is, bringing together Merck’s previously independent regions—as well as forging new links between the customer-facing and R&D areas of the company. It meant rationalizing the manufacturing network, implementing an enterprise resource planning
(ERP) system, and undertaking a number of other initiatives. Clark was well aware that transformation on this scale is difficult and that many good strategies are poorly executed—or never executed at all. He thus took important measures early on to ensure that this strategy would indeed win. The Strategy Realization Office One such measure (taken in 2005) involved creating a new entity, the Strategy Realization Office (SRO), to translate the strategy into specific objectives, measures, and initiatives. Measures and milestones called installation indicators would track the implementation, or “installation,” of the strategy. Realization indicators would track achievement of the strategy’s desired business outcomes. The distinction was intentional: many efforts successfully install a solution (such as a new call center) but fail to fully realize its intended benefits (resolving customer issues promptly and boosting customer loyalty). To further ensure that Merck’s strategy would indeed be fully realized, the SRO was also charged with supporting initiative teams in identifying and mitigating risk. This was accomplished through a risk framework and strategy execution process developed by Conner Partners, an Atlanta-based consultancy. The framework encourages teams and sponsors to proactively identify and mitigate risks in the categories of intent, people, and delivery: • Intent risk: the desired end result is unclear, poorly articulated, or not compelling. As the initiative progresses, the organization fails to develop a solid solution that supports achievement of the desired intent or strays into solutions that are no longer aligned with the original intent. Managing intent risk is about achieving clarity and focus.
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Balanced Scorecard Report
• People risk: key leaders are not providing sufficient support for the initiative, or else too much change is imposed on the organization too quickly, without adequate preparation. Managing people risk is about being prepared for the inevitable resistance that arises in the face of change. • Delivery risk: initiative governance is slow or ineffective. Project plans are nonexistent, fuzzy, inadequately resourced, or fail to account for important interdependencies between initiatives. Managing delivery risk is about executing plans that ensure the strategy is fully realized, as opposed to merely installed. “Red Is Good” In addition to regular BSC performance reporting on key metrics, Merck established a “situation summary” reporting system to provide initiative updates, including progress in mitigating intent, people, and delivery risks. “This system forced us to explicitly discuss risks to execution and develop mitigating actions,” notes Vittorio Nisita, then a member of the SRO and today its leader. But reporting risk effectively required a new mindset. “Most of us think of green (meaning ‘no risks or issues to report’) as being good and red (‘there are risks’) as being bad. We had to accept the fact that strategy execution is complex and that most initiatives have issues, most of the time,” says Nisita. Merck found that the real danger lies in underreporting problems, and allowing them to grow unchecked until they impede progress and threaten the strategy. Over time, initiative sponsors learned to reward honest reporting of risk (yellow or red)— to accept the idea that “red is good”—and to be wary of chronically “green” initiatives.
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Understanding, Commitment, and Alignment Another critical measure CEO Clark took involved investing time and effort in conducting a series of intensive two-day workshops for his executive team. Facilitated by the newly created SRO, the three workshops marked a departure from past meetings that had followed a more conventional presentation format in which the executive team played a relatively passive role. Instead, the workshops were highly interactive and required the team to wrestle with important questions such as “Why change? What is our desired future state? How do we get there? How will we know we’re making progress? What will it take and do we have the necessary resources?” The last of the three workshops ended by asking, in an individual and highly personal way, “Having understood what lies ahead, am I willing to embark on this journey?” An intangible but critically important output of the workshops— and the reason this work cannot be delegated by the senior team— was a greater understanding of, and commitment to, the strategy. More tangible outputs included the company’s first strategy map, a draft set of realization indicators,
a portfolio of strategic initiatives, a draft transformation plan, a set of key messages that would later be used to enroll the broader organization and, importantly, a list of existing activities that would be cease in order to make room for strategy execution. Around this time, Merck began communicating key financial metrics to Wall Street with more specificity than in previous years. Says Nisita, “This placed constraints on the organization, but in the long run proved helpful by making it more difficult for us to stray from the path our senior team had defined.” Investors welcomed the candor and detail with which Merck communicated its Plan to Win, and the focus CEO Clark put on execution. Within a year, the company’s stock price more than doubled relative to its low in October 2005. Expanding the Strategy Execution Infrastructure With a clear strategy and initiative portfolio in place, Merck proceeded by adding to its strategy execution capability. The six-person SRO team was already in place but, in a company the size of Merck, it was removed from the ultimate locus of changes in the company’s operating model—as well as from the locus of value
Figure 1. Building the Strategy Execution Infrastructure: The Program Office Network
Strategy Realization Office
COMPANY
DIVISION
Manufacturing Program Office
Commercial Program Office
Support Function Program Offices
Region Program Offices
REGION
LOCAL
R&D Program Office
Site Program Offices
Country Program Offices
Merck instituted a network of program realization offices to support functional areas (such as manufacturing and R&D) as well as regions and local areas.
July–August 2009
Figure 2. Driving Organizational Alignment: Financial and Human Resources
OUTPUTS
INPUTS • Competitive intelligence • Long-range financials, aspirations
Company Strategy
• Strategic priorities/imperatives • Strategy map, measures, cross-divisional initiatives
• Opportunities • Strategic priorities
Operational/ Business Planning
• Set of aligned divisional, functional, and franchise plans
Financial Expression
• Set of aligned divisional, functional, and franchise plans
Workforce Plan
• Set of aligned divisional, functional, and franchise plans
• Budgets • Projected financial outcomes
• Talent demands • Integrated talent strategies
The Strategy Office acts as “process steward” for the strategy cycle, ensuring all the linkages are in place between strategy, budgets, and workforce plans throughout the enterprise.
creation. The solution? Create a network of program realization offices to support key functions (for example R&D, sales and marketing, manufacturing) and, in some cases, key geographies (and even individual sites) (see Figure 1). Mirroring the SRO, the program realization offices were charged with supporting various leadership teams in managing work portfolios and addressing intent, people, and delivery risks at the local level. Initiative teams and program realization offices were staffed with a mix of line leaders, Lean Six Sigma professionals, change managers from the HR organization, and project managers from manufacturing and engineering. In some cases, new employees with specific skill sets were hired. Team members were supported through training programs and by communities of practice, some of which arose organically to focus on the specific needs of individuals working in the areas of intent, people, delivery, and communications. Through regular meetings between the company-level SRO, program realization offices, and the 10
initiative teams, those responsible for executing the strategy were able to talk with one another about the changes they were leading. They could examine each other’s plans and ensure that their individual efforts dovetailed rather than working at cross-purposes. In Nisita’s words: “This change program was so big and had to be implemented in so many line organizations. The program offices were a necessary investment in strategy execution, in our ability to progress from our current state to our desired future state.” The Strategy Cycle Of equal or greater importance was achieving alignment by forging explicit linkages between the company’s strategy and the budgets and workforce plans of its various divisions and functions (see Figure 2). To ensure these linkages are in place and are managed properly, Merck’s Strategy Office (of which the SRO is a part) was eventually charged with the role of “process steward” for the strategy cycle.2 In that capacity, the Strategy Office does not execute all parts of the strategy cycle but does work to make sure
that those who do (for example R&D, sales and marketing, manufacturing, finance, and HR) understand their role in the overall process and in maintaining alignment between functional area plans and the company’s overall strategy. Incentives proved an additional lever for achieving alignment with company strategy. Throughout the execution phase, Merck cascaded the company scorecard into all of its divisions and functions, tying compensation to shared objectives in order to increase collaboration and break down functional silos. Additionally, the company modified its incentive structure to provide for much greater differentiation between the rewards given to poor and high performers. From Infrastructure to Execution Premium Like many companies, Merck has been affected by the current economic downturn. Moreover, the challenges facing the pharmaceutical industry have, if anything, grown more pronounced. Still, Merck’s investment in building a strategy execution capability is paying off. The company is on track to deliver against the commitments it made to Wall Street in 2005, with a leaner, more flexible cost structure and new research and commercial models that have improved its ability to deliver value to customers. Recently, Merck and ScheringPlough announced that they will combine later this year to create a strong, global healthcare leader. Merck’s investment in its strategy execution infrastructure puts it in a strong position to successfully integrate the two pharmaceutical giants upon completion of the merger. n 1. According to EvaluatePharma®, a pharmaceutical and biotechnology analysis service. 2. Merck’s Strategy Office, led by the company’s chief strategy officer, consists of the Strategy Development Group, the Strategy Realization Office, and an enterprisewide Portfolio Management group that also fulfills the process steward role.
Reprint #B0907C
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B U S I N E S S
I N T E L L I G E N C E / P E R F O R M A N C E
M A N A G E M E N T
Balanced Scorecard Report
Why You Need a Business Intelligence Competency Center By Brian Litofsky, Vice President, Business Intelligence and Performance Management, Palladium Group, Inc.
Like most management systems, business intelligence (BI) and performance management (PM) systems don’t just maintain themselves, let alone evolve on their own. But once implemented, who should oversee their management and development? Not business managers: such systems are generally outside their purview. And most managers don’t know how to integrate them into daily use or adapt them to handle the business’s growing needs. The solution? The Business Intelligence Competency Center. Just as the Office of Strategy Management ensures the enterprisewide best practice execution of strategy management and alignment, the BICC ensures best practice execution—for BI and PM processes and systems. The centralized, cross-functional Business Intelligence Competency Center (BICC) is responsible for ensuring the successful creation, rollout, and use of BI and PM systems throughout an enterprise. It leverages its members’ expertise in reusable processes and technologies, and their experience in linking systems to enterprise goals, to efficiently support departments, functional areas, and divisions. It ensures BI and PM systems and processes are functioning properly to provide these areas the reports, data, budget analysis, modeling, and other information they need, so they can concentrate on their own critical business processes.
management professionals, it may seem familiar. With good reason: it’s analogous to the Office of Strategy Management (OSM). Like the OSM, it can help coordinate the project management aspects of implementations, as well as perform all the coordinating, planning, review, development, policymaking, and training responsibilities that constitute stewardship of an enterprisewide management process. The Eight Key Roles of the BICC Ideally, the BICC performs eight critical roles.
Despite its name, the BICC oversees more than just the BI aspects of reporting, analysis, Balanced Scorecards, and data management; it typically also encompasses the activities comprising PM, such as financial planning, operational planning, consolidations, and dashboards. For this reason, it could truly be called a BIPM Competency Center. For practicality’s sake, however, we will use its standard industry term.1
1. Program Management. First and foremost, the BICC manages the enterprise’s overall BI and PM programs. Specifically, it plans programs and projects and maintains ongoing activities. It also establishes and manages organizational controls, such as project methodologies and business process definitions. A major part of its program management responsibilities is promoting leaders’ commitment to BI and PM to ensure their adoption and utilization organization-wide.
Introduced only within the past few years, the concept of the BICC is still emerging. To strategy
2. Consistency and Standards. Regardless of an organization’s size, consistency and standards in
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processes and technologies make sense for all the usual reasons: from achieving transparency and simplicity to realizing efficiencies. In large organizations, they are even more important. Information needs are probably greater and more varied; and without standards, functional areas (e.g., finance or sales) might develop their own methods, resulting in the use of multiple technologies or unnecessary process differentiation. Standards prevent different areas from having to reinvent the wheel, thus facilitating adoption, reuse, and maintenance. This isn’t to say that every area must do everything in the same way. But the BICC can develop guidelines for determining when divergence is needed, which helps reinforce efficiency and clarity of purpose. 3. Delivery. Creating BI and PM systems involves establishing a procedure for determining business needs and translating them
Business Intelligence and Performance Management Business intelligence refers to the technologies, applications, and processes that help a business understand, analyze, and use critical information to make business decisions. BI technologies gather, manage, and deliver this information, which includes reporting, analytics, data warehousing, and data mining. Performance management (or corporate performance management) is related to BI, and deals with monitoring, managing, and planning organizational performance. It encompasses BSCs, key performance indicators, dashboards, and planning and forecasting applications.
July–August 2009
into a technical implementation (delivery). It makes no sense for each entity within the enterprise to independently determine the best way to build solutions. The BICC should support the delivery of any and all applications, and can do so in a variety of ways. The most direct way is for the BICC to be responsible for all projects and their development. Another option: embedding a BICC member within each project team. The latter approach works well where the BICC supports multiple divisions, each with its own reporting or planning needs. 4. Training. With members’ collective knowledge about the BI/PM applications in use in the enterprise, the BICC can create standardized training programs for each individual system or for general BI/PM training. The center can offer these programs directly or through a “train the trainer” approach. The latter offers the added benefit of creating local “super users” (expert users) who maintain an ongoing relationship with the BICC. 5. Support. As many BI and PM systems rely on the same technologies, processes, and user interactions, it makes sense for the BICC to provide support to all of these entities. The BICC can troubleshoot problems, manage user requests, and handle ongoing operations. The BICC needn’t be the first line of support, especially if your existing support system functions well, but it should be part of the support structure. 6. Vendor Management. As a key point of contact with BI and PM vendors, the BICC serves as the center for problem resolution, enhancement requests, external training coordination, and vendor relationship management. But its most significant role is using its leverage to negotiate for software and services.
Consider, for example, the matter 7. Data Stewardship. At the of organizational reporting hierarcore of all BI and PM systems is chies. The organizational structure the data. Someone needs to have (e.g., geographic, by product line, business ownership of the data— or matrixed) should “roll up” the that is, to ensure that information is accurate and aligns to the busi- same way across systems so that equivalent information can be ness’s needs. There is also the examined at each level of the technical ownership of the data, organization. For example, if you in its originating systems as move Texas from your southern well as in the other repositories that comprise data management, such Fundamentally, the Business Intelligence as data warehouses and data marts. It Competency Center should provide as much also includes ETL efficiency to the enterprise as possible, lever(extract, transform, aging its considerable experience with—and load) activities in pulling data from knowledge of—systems, implementations, one database to processes, and problems. another of a different type. sales region to your southwestern Depending on the scope of the region, that change should be BICC, it could have technical or made in all systems. Or if you business ownership—or both—or expand a product from one line it could assist the business and/or to another, that change must be IT in setting up best practices for reflected in all systems. handling data stewardship directly. Fundamentally, the BICC should 8. Governance. Establishing provide as much efficiency to the and maintaining a consistent enterprise as possible, leveraging governance and management its considerable experience with methodology, especially when —and knowledge of—systems, multiple organizations (e.g., implementations, processes, and finance, sales) are involved in problems. It should focus on the BI and PM projects, is vital. So areas in which it can be of greatest is having a philosophy of BI help. and PM systems—and how they should mature in tandem with Building a BICC the enterprise’s strategic direction. Every BICC needn’t perform every The BICC serves as the goverrole initially. Its responsibilities nance body that executes this can be increased gradually. Just as philosophy. The organizations can your BI capability probably began provide input on these matters, with one project that expanded, but a central body can establish so, too, can the BICC expand. a coherent, holistic approach. This allows the most important The governance structure can be functions to be put in place first, top-down, in which an executive while spreading out the cost of sponsor has final say, based on developing a BICC over time. The input; or federated, in which BICC can thus demonstrate some each stakeholder organization of its value before management has an equal or proportionate commits to funding a full-scale say in decisions. Either way, the operation. Nonetheless, it’s a misBICC provides a decision-making take to think the BICC just springs process to reconcile competing up as the result of multiple project needs and achieve consensus. implementations. Developing a BICC is in itself a project.
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Balanced Scorecard Report
1. Organic growth from a division’s initial implementations. In this company, a division’s project team built robust revenue and expense planning and reporting systems, along with a data warehouse designed to resolve persistent data quality and consistency problems. Over time, the team built planning and reporting capabilities for additional functional areas and enhanced reporting capabilities (e.g., full financial statements) for areas it had already served. As the multiple project phases unfolded, the project team realized it needed to expand into a BICC. As a BICC, its initial responsibilities were delivery, vendor management, and data stewardship. Eventually, these expanded to all eight BICC roles for BI and PM within its division. As the BICC matured, it became clear that its expertise could— and should—serve the rest of the company. Program management, vendor management, and consistency and standards were deemed the most easily translatable functions. The BICC team was also willing to help with delivery if the other divisions lacked adequate resources. Overall, the BICC’s plan was to grow enterprisewide and to support each area as needed. 2. Establishing a crossdivisional BICC from the start. Another company decided upfront to create planning and reporting processes throughout its divisions, and to create a BICC from the outset. One division did the first implementation, while a central project team launched the BICC. The BICC focused on program management, consis-
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tency and standards, training, support, and vendor management. This company’s BICC never intended to build or manage each division’s systems. Instead, it offered its expertise in guiding the divisions’ efforts. As each division devised its process and implemented the application, it was assigned a BICC team member to ensure its adherence to corporate standards and to act as a liaison for training and coordination with the overall strategic vision for BI. Whatever approach you choose, be guided by the ultimate purpose of your BICC: to ensure end-user adoption at all levels. All the entities creating and managing BI need to recognize its usefulness and the efficiencies that can be gained through centralized, reusable processes and systems. After all, the purpose of these efforts is to drive better business decision making by those very end users. BICC Personnel A BICC is fundamentally a crossfunctional team of people with BI and PM skills, drawn from the business, finance, and IT areas of the enterprise. It must address the needs of the different groups, while recognizing the enterprise’s overall strategic goals of enabling and promoting enterprise alignment. Team members may start off on a project within one functional area, but will ultimately need to serve the overall needs of the enterprise. A BICC needs people with three types of skills. People with business skills can define priorities, make process changes, and manage organizational changes. They also understand how BI and PM systems must link to the business’s strategy and goals. People with technology skills are knowledgeable not only about technology, but also about
C O M I N G
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B S R
Linking Strategy to Operations, Part II: the role of theme teams and the IT platform Building Strong Leaders: The Key to Change Management at Pfizer Australia Escaping the “calendar prison”: StatoilHydro pilots dynamic (vs. rolling) forecasting to test whether it’s more relevant Which KPIs and scorecard components are most likely to spell success? Exclusive findings from an international survey on the impact of BSC and metrics design— and choice of strategy—on a company’s prospects. And, the November–December BSR, a special issue on strategic risk management
standards, implementation methodology, and infrastructure, and are able to manage programs. Finally, people with analytic skills understand information usage, business rules, information quality management, and analytical modeling. At what point does an organization need a BICC? There’s no rule of thumb. But as your organization matures in its BI and PM use, consider establishing a BICC, building its responsibilities as your organization’s priorities grow. So whether your BICC arises organically out of one division’s implementation or as a centrally designed effort, a careful and deliberate consideration of a BICC and a staged approach to building it out will allow you to get the most out of your BI and PM processes and systems. Look for more details on the BICC— how-to’s, tips, and pitfalls—in future issues of BSR. 1. The BICC is also known as a BI Center of Excellence or BI Project Management Office.
Reprint #B0907D
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Product #B09070
Let’s consider two actual examples of building a BICC. Both are from large corporations with multiple divisions, each of which was sufficiently large scale to be an enterprise in its own right.
