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Balanced Scorecard Report the strategy execution source

s e p t e m b e r – o c t o b e r 2010 : vol 12 no 5

Dealing with Dilemmas: Redefining Strategy By Frank Buytendijk, Vice President and Fellow, Oracle Corporation, and author, Dealing with Dilemmas (Wiley, 2010) For most organizations, strategy involves multiple dilemmas. Focus on customer value at the expense of profits. Aim for long-term financial performance and you impair short-term performance. Organizations view these big (and risky) strategic choices as being inevitable. Not so, says the author. Eschew choice; seek, not compromise, but synthesis. A portfolio of strategic options gives organizations the greatest flexibility and adaptability. And scenario-based strategy maps can help create these options. Strategy making is by nature fraught with dilemmas. Investments to ensure longterm performance may impair short-term results. Economies of scale in the back office may limit sales flexibility in the front office. Supporting one information technology (IT) initiative may exhaust resources available to put toward another equally worthwhile initiative. Dilemmas can be found in any complex organization, notes Bill Fitzsimmons, chief accounting officer of Atlanta-based Cox Communications. He has a straightforward definition of a dilemma: a multidimensional problem, much like most issues that reach the executive level. If it did not have multiple angles, it would not have—or should not have—reached the C-suite. Heidi Melin, chief marketing officer at the California telepresence company Polycom, emphasizes the difficulty of choice presented by such a decision. A dilemma, she observes, is a problem that makes you stop and think. A dilemma represents a fork in the road where the decision you make will have great impact.1 Western management culture abhors dilemmas. Dilemmas put managers on the spot; whatever choice they make, they cannot win. Dilemmas don’t fit with the Western focus on immediate solutions, where management lives by the 80/20 rule and our action-oriented thinking is that “any decision is better than no decision.” Moreover, dilemmas don’t square with the universal fascination with corporate heroes. People can’t get enough of heroic stories, of larger-than-life CEOs who make big, bold decisions and single-handedly turn companies around—or who, like Apple’s Steve Jobs, turn around entire industries. Not everyone has Jobs’s Midas touch, though. Fred Goodwin, the former CEO of Royal Bank of Scotland, made a few too many bold choices in his acquisition strategy. Wendelin Wiedeking, former CEO of Porsche, went from riches back to rags trying to acquire the much larger Volkswagen Group. continued on the following page

1 Comments from Bill Fitzsimmons and Heidi Melin from F. Buytendijk, Dealing with Dilemmas (Wiley, 2010), p. 4.

also in this issue: Building Performance Excellence Around a Unified Management System at USAMMA . . . . . . . . . . . . . . . . . . . . . . . . . 6 Beyond the OSM: Strategy Execution Champions Help Foster Strategy Execution Capability . . . . . . . . . . . . 10 From Civil Service to Customer Focus: How Public Sector Organizations Energize Their Workforce Around Strategy . . . . . . . . . . . . . . 14

join us! Register to join Kaplan & Norton’s Palladium Execution Premium Community (XPC), the premier online destination for strategy and performance management and Balanced Scorecard practitioners, and receive the free monthly BSC Online newsletter. Learn best practices, participate in peer networking, learn about upcoming events, and get practical know-how from thought leaders and leading practitioners. Learn more and become a member at www.thepalladiumgroup.com/xpc.

also available Check out the latest BSR Reader, Kaplan and Norton on Strategy Management. This eight-article collection features analysis, historical perspectives, and essays by Robert Kaplan and David Norton on their strategy management philosophy, a philosophy inspired by system dynamics. For details and to order, visit web.hbr.org and search “BSR Reader.”

Strategy Is About Creating Options By defining strategy as “making those big, bold choices,” we set ourselves up for failure. This way of thinking actually creates the dilemmas we are trying to prevent. The more strategic and farreaching these choices are, the more they are bound to reveal conflicting stakeholder requirements or conflicts between the long and the short term. Is making either-or choices really what strategy is about? Strategy is supposed to be a blueprint for an organization’s future success. But the one thing we know about the future is that it will most likely be different from the present. Do we really believe that with analytical rigor we can foresee the future? How are we supposed to make the right choices today to affect performance tomorrow? And is it wise to make choices that may limit our flexibility to respond to tomorrow’s needs? The real issue at hand is how to deal with an unknown future. Strategy has to align itself to an inherently fluid external environment. It must therefore be flexible enough that it can be changed constantly and adapted to shifting internal, as well as external, conditions. What happens when, instead of thinking of strategy as making choices and commitments, we see it as creating a portfolio of options? Options, as opposed to choices, do not limit our flexibility in the future; rather, they create strategic flexibility. (Obviously, these options should not be random; they should be structured around a company’s strategic themes, such as growth by acquisition [or, conversely, organic growth], creating a greener way of working, entering [or exiting] certain markets, or specific go-to-market strategies.) The traditional view is that the more uncertain (i.e., the riskier) an investment, the more you need to temper its expected return. But if instead of focusing on making bet-the-farm choices, you focus on creating managerial flexibility, risk actually becomes an instrument of value creation.

dilemma

bsc perspectives

description

Value vs. profit

Financial/Customer

Customer value or profit maximization?

Top down vs. bottom up

Financial/Process

Zero-based or resource-based view of the firm?

Optimize vs. innovate

Learning & Growth/ Process

Also known as exploitation vs. exploration

Listen vs. lead

Customer/ Learning & Growth

Innovate through listening to customer requirements or by creating new demand?

Inside out vs. outside in

Customer/Process

Who leads? Back office or front office?

Long term vs. short term

Learning & Growth/ Financial

Long-term business performance or short-term financial results?

FIGURE 1: SIX STRATEGY DILEMMAS If we contrast, rather than link, the four BSC perspectives, we see six fundamental strategy dilemmas that are common to all organizations.

Uncertainty, when seen this way, does not depress the value of any single investment but may, in fact, amplify the value of investments in general. Strategy, with its focus on the future, is characterized by uncertainty. The more uncertain the future, the more valuable flexibility and adaptiveness are as core strategic competencies. The idea is not as esoteric as it sounds. In fact, it is already practiced in a number of areas, particularly in product strategy. For instance, financial institutions are following the automotive industry and moving from a strategy of standardized, off-the-shelf products to one of product components and partial products. Based on the customer risk profile or specific customer requirements, product components can be combined into a uniquely tailored product, such as customized financing for a mortgage. Jack de Kreij, CFO and member of the board of Vopak, the global warehousing and transshipment company, emphasizes portfolio thinking. His company changed its strategy drastically in 2003. Instead of pursuing value chain integration, offering full services for certain chemicals and oils, it decided to focus on warehousing and transshipment for a wider range of products and

2 Ibid., p. 19.

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industries. The investments needed to achieve this goal would lead to many more reuse options than investments in separate steps in the value chain. Almost paradoxically, it is Vopak’s lessindustry-specific focus that enables the company to create the most—and the best—options for growth.2 The notion that strategy should create options does not at all conflict with established definitions of strategy. This idea supports the definition of strategy as a plan of action designed to achieve a particular goal. The goal stays the same; the plan of action just becomes clearer over time because, from the start, you’ve built flexibility into the plan. The details will unfold while you are on the road, allowing you to avoid unexpected roadblocks and discover previously unknown shortcuts. This does not mean that you do not need a strategy or that you must jump on every opportunity that arises. Creating options does not equal opportunistic behavior. The strategic goals still need to be clear. You need to ensure you make it to your goal and that you do so in an efficient manner. Some options help us reach the goal; others divert us from that focus. What is different is the way the strategy formulation process is structured and how the strategy is

stuck

neutral

bias left

bias right

stretch

Value/Profit Top down/ Bottom up Optimization/ Innovation Listen/Lead Inside out/ Outside in Long term/ Short term

0%

20%

40%

60%

80%

100%

FIGURE 2: HOW ORGANIZATIONS DEAL WITH THEIR DILEMMAS IN PRACTICE From left to right, the five strategic states an organization can be in when dealing with a dilemma: stuck, neutral, biased (to the left side of the dilemma), biased (to the right side of the dilemma), and strategic stretch. The bars represent the percentage of organizations reporting to be in any given state, by dilemma.

described. Instead of the traditional clear separation between strategy formulation, strategy execution, and performance measurement, the process needs to be based on continuous feedback, testing, and learning. In that way, choices do not turn into dilemmas. The former prime minister of Bavaria, Edmund Stoiber, emphasized the importance of a sound strategic decisionmaking process. Dilemmas, he noted, can also arise through bad decision making. Dilemmas can be the consequences of decisions that are not well thought through. When far-reaching decisions are made, the consequences for all stakeholders should be clear; if not, irreversible damage may be done.3

A Practical Approach The idea of using options-based strategies as a means of creating greater strategic agility is not new, but it has yet to be placed into a practical framework. The strategic dilemmas that businesses confront have been researched individually, not holistically. To my knowledge, no study thus far has linked the reconciliation of dilemmas in general to strategic decision making in a practical way.

Applying the Balanced Scorecard and strategy maps in a new way can help improve not only strategy measurement and management but also strategy formulation. The original 1992 conception of the Balanced Scorecard showed the four perspectives surrounding the strategic vision and objectives. Later, Robert Kaplan and David Norton morphed this into a strategy map in which the perspectives were linked in causeand-effect relationships. However, if instead of linking the four perspectives, we contrast them, six fundamental dilemmas common to all organizations unfold. (See Figure 1.) There is a dilemma between the customer and the financial perspectives: the choice of value versus profit. A focus on customer value may be at odds with

and the front office that many organizations know all too well. Between the learning and growth and financial perspectives we have the long-term versus short-term dilemma, where investing in future growth doesn’t usually pay back in the current or following quarter. After researching these six dilemmas by conducting an extensive literature study and a global survey, as well as producing high-profile case studies, I’ve found that all these dilemmas can be fundamentally reconciled, leading to real business improvements. When a fundamental contradiction is eliminated, the business model jumps to a new level and, if executed well, yields competitive advantage. Figure 2 shows how organizations worldwide are coping with the six dilemmas, based on a global survey of 580 respondents from multiple industries.4 The six dilemmas are listed from top to bottom, showing, from left to right, the different “states” an organization can be in: stuck, neutral, bias (left or right), or stretch. Stuck means the organization scores low on both sides of the dilemma. This is the worst situation; you can neither optimize nor innovate, nor can you control for the short term or the long term. Respondents scored the worst in these two dilemmas. Neutral means organizations do OK, but lack competitive differentiation. A bias one way or the other (to the left-hand or the right-hand side of the dilemma) means that the organization scores relatively high on one side but

By defining strategy as “making those big, bold choices,” we set ourselves up for failure. This way of thinking actually creates the dilemmas we are trying to prevent. profit maximization. Another dilemma exists between the customer and process perspectives: inside out versus outside in. This dilemma represents the classic battle between the back office

low on the other. There is a natural preference for inside-out thinking, for example, or for profit maximization, and the other side of the dilemma is often an afterthought. Indeed, the inside-out

3 Ibid., p. 5. 4 Global “Dealing with Dilemmas” Survey from F. Buytendijk, Dealing with Dilemmas (Wiley, 2010).

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approach and a profit focus are the two most common biases. The goal is to achieve strategic stretch, where the organization has found a way to do both, such as listening to its customers while leading them at the same time. It’s neither a balance nor a compromise, but instead a true reconciliation—in other words, a synthesis. The ability to achieve strategic stretch on any given dilemma is no trivial matter. Deeper analysis of the data revealed that only 20% of respondents said they achieve strategic stretch on one dilemma, and fewer than 5% are able to achieve stretch on three dilemmas. Companies that are stuck or neutral in four or five of the dilemmas are much more likely to have a bias toward value, leading customers, and preferring an outside-in approach. These three biases are connected to the customer perspective of the BSC. This shows that “putting the customer first” is not automatically the right thing to do. The key to success is to reconcile the customer focus with a focus on your company’s strategic objectives. Organizations that had average scores and that were either neutral or stuck in three or four dilemmas tend to have a bias for inside-out thinking and leading the customer, as well as a profit orientation. These are the companies that are driven from the inside, with a focus on their own objectives. They change when necessary but do not really drive change. The biases existing in the top one-third of companies— which scored stuck or neutral in two or fewer dilemmas—seem to be toward innovation, a long-term view, and an outside-in approach. These biases are largely connected with the learning and growth perspective—worrying about tomorrow’s performance.

The ability to achieve strategic stretch on any given dilemma is no trivial matter. Deeper analysis of the data revealed that only 20% of respondents said they achieve strategic stretch on one dilemma, and fewer than 5% are able to achieve stretch on three dilemmas. needs to be successful in the short term in order to invest in the long term. At the same time, however, this is one of the hardest dilemmas organizations face. Almost 40% of respondents were strategically stuck here. We can achieve synthesis when faced with this dilemma through the use of existing methodologies, in this case strategy maps—but we need to apply them in a new way.

Scenario-Based Strategy Maps One way to create a more thorough and adaptive strategy is to combine scenario analysis with strategy management techniques—namely, the strategy map.5 Strategy maps are intended to be predictive—to show how decisions made in the present could impact future results. This is done by linking leading and lagging indicators. Empirical data and statistical techniques are used to discover and test these relationships. However, the strategy map’s causal model does not reflect the evolution of strategy over time. For one thing, statistical techniques are valid only when sufficient data are available. Moreover, data, by definition, describe results from the past. Given that all we can truly predict about the future is that it will most likely be different from the present, it’s reasonable to question the predictive value of correlations found in data describing the past. Put in stronger terms, one could even argue that validating a strategy map with the use of past data, by definition, invalidates it.

But using scenario planning and strategy mapping in tandem represents a substantial step forward in creating more “future proof” strategies. Specifically, you create a strategy map for each scenario based on its unique assumptions and details. Strategic objectives that are common across all or most scenarios can be considered strategic imperatives. Those that are not common but that are still essential to progress can be called strategic options. Let’s see how this works in practice.

Case Example: Tier 1 Talent Tier 1 Talent (T1T) is a hypothetical temp agency and recruitment firm that specializes in IT staff. The company structured its strategic objectives using a strategy map and created three scenarios to support its customer intimacy strategy. “Steady as she goes” predicts a market in which things stay as they are, with modest but stable growth. “Networked world” assumes that many IT professionals become self-employed and move from project to project. “Cost, cost, cost,” the third scenario, foresees a downturn in which job mobility decreases and IT outsourcing grows. T1T’s strategic objectives must be compared across all scenarios to distinguish its strategic imperatives from its strategic options.

Balancing long-term business performance and short-term financial results seems to be key to sustainable success. The logic is obvious. An organization

5O  ver time, the Balanced Scorecard and strategy maps have grown from a strategy measurement system to a strategy management system, and now to a strategy execution system. Adding scenario analysis takes strategy maps back “upstream,” giving them an additional application as a strategy formulation system. 4

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• One of T1T’s internal process objectives is to invest heavily in a “matching system” that pairs job descriptions and résumés. This objective appears in scenario 1 (“Steady as she goes”) and is even more important in the growth scenario (“Networked world”). In scenario 3, the downturn scenario, the matching system is important for differentiating the company from its competitors. Thus, the strategic objective to invest further in the system and its process is a strategic imperative. • A new idea that might emerge from T1T’s scenario exercise is investing in university relationships. When business is booming, such relationships are an ideal source of new candidates for junior-level positions. If the downturn scenario becomes a reality, building such supplier relations is equally important in distinguishing the company from its competition with better (and less costly) personnel. Although not originally part of its strategy, building university relationships is an objective that qualifies as a strategic imperative. • Besides its staffing business, T1T also has a small and profitable consulting division. If business is booming, that business should be closed so the company can focus on recruitment. But if business goes south, the company will need all the profit it can get. In that case, expanding the consulting business becomes a strategic option. It doesn’t hurt to keep the consultancy going while it is profitable. But, if necessary, it can be discontinued.

These are just a few of the strategic objectives across the four perspectives of T1T’s Balanced Scorecard. However, positioning them in terms of scenarios and options leads to an entirely different—and more future proof—Balanced Scorecard.

Does the idea of keeping your options open sound too much like “postponing decision making,” going with the flow, and being reactive, rather than being proactive in the face of change? On the contrary; I would say it involves much more thought than traditional strategy formulation, because it requires uncovering the deeper truth of what Drucker called the “theory of the business.” The theory of the business is a strategic framework, and an organization’s strategic framework describes its assumptions about its environment (e.g., society, the market, the customer, and technology), assumptions about its unique mission (how it achieves meaningful results and makes a difference), and assumptions about its core competencies (where the organization must excel to achieve and maintain leadership). To the layman’s ears, the word “theory” may sound static, but it means nothing other than “the best possible understanding of reality that we have.” And in business, that is a highly dynamic process.

Frank Buytendijk, a VP and fellow at Oracle Corp., is also a visiting fellow at Cranfield University School of Management and a former Gartner Research VP. His research and publications focus on strategy, organizational behavior, and performance management. His latest book, Dealing with Dilemmas (Wiley, 2010), argues that traditional management practices actually cause many of the dilemmas executives face and offers practical advice on how to fundamentally resolve business dilemmas. For more information, visit www.frankbuytendijk.com.

To learn more BSC cocreator David Norton wrote about how strategy maps in conjunction with a management system are the key to achieving agility and strategic adaptability in changing economic times. See “How a Management System Helps You Cope with a Recession,” BSR May–June 2009 (Reprint #B0905A).

Continue the dialogue See a video in which Frank describes Dealing with Dilemmas at www.thepalladiumgroup.com/buytendijk Reprint #B1009A

• The company recently launched an innovation initiative to develop new services, an undertaking that seems worthwhile in any circumstances. However, in the “Networked world” scenario, management’s attention and resources must go toward fulfilling demand. And in the “Cost, cost, cost” scenario, there is no money for innovation. As counterintuitive as it sounds, T1T decides to moderate its investments in the innovation program.

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Building Performance Excellence Around a Unified Management System at USAMMA By Michael Brazukas, Managing Director, Palladium Group, Inc. Change doesn’t happen easily in organizations, particularly public sector institutions. Size, bureaucracy, regulation, and the lack of competition favor inertia. In military organizations, cyclic leadership changes make it hard for management systems to get traction. Yet at the U.S. Army Medical Materiel Agency (USAMMA), one of 80 subordinate command organizations within the U.S. Army Medical Department [AMEDD]), traction is happening. The agency’s pursuit of operational excellence is a model of rigor and continuous, institutionalized improvement. At its heart: a governance framework that includes one of the most disciplined approaches to the strategy review meeting you’ll find anywhere. The care that U.S. Army soldiers receive is not just due to top-quality medical professionals and the latest technology. It’s as much due to an integrated, welloiled management system that merges medical training, new technologies, and evolving techniques with a formidable medical infrastructure and an advanced supply chain of materiel. Behind the scenes, commanders and their direct reports oversee the management of people, processes, and other resources, as well as the strategy management and operational improvement efforts that steadily raise performance to higher levels of excellence. The U.S. Army Medical Materiel Agency (USAMMA) is a relatively small (and “tier 3”) organization within the “tier 1” U.S. Army Medical Command (USAMEDCOM). With a procurement budget of half a billion dollars and a workforce of 400 military, civilian, and defense contractor personnel, USAMMA provides military forces with medical logistics support and solutions for war preparation, combat deployment, and homeland defense. Its support ranges from

emergency medical care to preventive care, and from combat stress control to veterinary care for the military’s canine and equine members. Headquartered at Fort Detrick in Frederick, Md., under the control of the tier 2 U.S. Army Medical Research and Materiel Command (USAMRMC), USAMMA acquires, equips, and sustains medical sets and equipment and oversees centrally managed programs.1 It

ment in management and operations— USAMMA’s leaders implemented a program of performance excellence, with the Balanced Scorecard (BSC) and strategy map at its heart. The program employs such elements as Lean Six Sigma, ISO 9000, Baldrige, and other quality methodologies. Organizational excellence means more than the effective use of taxpayer dollars; it’s a matter of saving lives (and limbs).

The BSC in the U.S. Army The BSC is not new to the U.S. Army; it was adopted at the topmost level around 2000. USAMMA began experimenting with it in 2001, at about the time parent AMEDD adopted it.2 At that time, though, its use at tier 3 subordinate levels was not strictly mandated. Users’ scorecards and strategy maps were not aligned to the high-level Army Medicine scorecard, and emphasis on the BSC program fluctuated throughout the rotation of AMEDD’s subsequent commanding generals. The effort was revived in 2007, when Lt. Gen. Eric Schoomaker, a BSC advocate, assumed command of USAMEDCOM (and was also appointed the Army Surgeon General). USAMMA had its first practical strategy map in 2007, and by the time

With the renewed dedication to the BSC came the recognition that the BSC system could integrate strategy management with USAMMA’s quality programs for optimal effect. has three medical maintenance depots and storage operations in the U.S. as well as storage operations throughout Asia and Europe. Medical sets (kits) include everything from medics’ aid bags and chemical-biological-agent detection tools to mobile combat support hospitals. To support its mission and future plans—and ensure continuous improve-

of its first strategy review meeting in early 2008, a real-time, technologyautomated BSC. It is currently refining its third-generation BSC. USAMMA’s recent drive for organizational excellence is in large part the work of its Deputy Commander for Support, John Lapham, a USAMMA professional since 1991 and a retired army officer of 21 years. Lapham, who holds a PhD in organizational leadership, is the

1C  entrally managed programs are pre-positioned in strategic locations worldwide (on land and on board ship), ready for immediate deployment if a new conflict erupts. 2A  MEDD first created a scorecard in late 2000/early 2001. See “To learn more,” p. 9, for further information about AMEDD’s BSC. Also, in 2004 the Army won entry into the Palladium BSC Hall of Fame. 6

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de facto chief management officer and chief learning officer for the agency. Among the many areas he oversees are finance, strategy and quality, information technology (IT), contracts management, organizational learning, and compliance.

Establishing a System of Strategic Governance Quality management and process improvement were practiced well before USAMMA adopted the BSC. In fact, the army has mandated the use of Lean Six Sigma since 2004 and has encouraged other continuous improvement efforts such as ISO certification and the Army Performance Improvement Criteria (a Baldrige-modeled program). But with the renewed dedication to the BSC came the recognition that the BSC system could integrate strategy management with USAMMA’s quality programs for optimal effect. “We realized if we’re going to do a Lean Six Sigma or other process initiative,” says Lapham, “it should be based on some gap or opportunity we identified in strategic planning.” By June 2008, USAMMA’s leadership team—the commander, the deputy commander for operations, and the deputy commander for support— decided to build a strategic governance model based on the nine Office of Strategy Management (OSM) roles. Under Lapham, three to four near-fulltime personnel run the agency’s OSM (called “OSM-Q”; the “Q” is for “quality programs”), preparing agendas and coordinating data collection, initiative reporting, and analysis to support strategy review and refresh activities. They orchestrate the strategy review meetings (SRMs), provide feedback, and coordinate and issue strategic communications, as well as provide technical expertise and counsel for quality management endeavors. In

FIGURE 1: USAMMA’S NEW STRATEGIC GOVERNANCE FRAMEWORK This schematic shows the frequency and type of meetings, by level of command, along with their focus. DCO = deputy commander of operations; DCS = deputy commander of support (Lapham); and DfA = deputy for acquisition.

addition, the OSM-Q supports USAMMA’s participation in external management forums and efforts within the army and the military. Leaders adapted the SRM calendar to the existing command structure to create a more efficient, more powerful program of strategy reviews, each with its own specific areas of focus. (See Figure 1.) • Once a month, directors, project managers, and division chiefs (principal managers) review strategic objectives, measures and targets, and initiatives • Every six weeks, the principal managers report to their bosses (the deputy commanders) on strategic objective performance and supporting activities. • Once every quarter, the commander and deputy commanders (i.e., the governance council) hold their SRM, in which they assess overall performance. Separately, the USAMMA commander reports on his agency’s performance to the USAMRMC commander and key staff; and at yet another SRM, the USAMMA commander and select agency members report to the Army Medical Logistics Enterprise, a matrix group spanning key Army Medicine logistics entities.

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Sustaining Meeting Rigor Through “Rules of Engagement” USAMMA’s leaders created guidelines called “Rules of Engagement” to extract the most value from SRMs. These guidelines urge careful preparation for the meetings and describe the purpose of the discussions, delineating which items should be discussed (e.g., the performance of objectives, not of individual measures). The Rules of Engagement stipulate that meetings follow a prescribed schedule—to the quarter hour—to ensure that over the three or four hours, participants adhere to strategic priorities. Following an initial update on key objectives, participants provide status reports (exception reporting, to use time efficiently). The meeting room, with its large U-shaped table, is designed to promote interaction and open discussion. Everyone faces a large screen that displays a live view of the automated BSC, and participants navigate through the BSC, analyzing performance area by area and making recommendations. Over time, the focus of discussions has shifted from strategic direction and measurements to strategic initiatives (“Are we focusing on the right ones? Are we making the

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Another example of making change happen (fast) in a government organization

right resource allocation decisions?”). At the agency’s recent strategy renewal meeting, leaders decided to add changes to the strategy map and BSC to SRM agendas.

Accelerating the Execution Premium Process at the Department of the Interior’s Office of Inspector General

Process Mapping and Management

The U.S. Department of the Interior (DOI) protects America’s natural resources

In the late 1990s, USAMMA’s leaders realized that formalizing process management would be important for dealing with an increasingly complex work environment that demanded greater accountability. In fact, USAMMA considers process management, mapping, and improvement to be part of strategy management implementation. “If you don’t process map,” says Lapham, “you don’t get to the core of how to measure the right things, design new ones, or fix what’s broken. Just documenting them isn’t enough.” USAMMA’s ISO 9000 activities established process mapping for maintenance operations, and the move to Lean Six Sigma requires even more rigor. Teams have spent an average of three months developing the process maps of individual support functions. This effort, still under way, will expand process mapping and management to all key processes; its completion is expected by late 2010 or early 2011.

and cultural heritage and supplies energy to the country. Within its oversight are the National Park Service, the U.S. Fish & Wildlife Service, the Bureau of Indian Affairs, the Bureau of Land Management, the Minerals Management Service, and the U.S. Geological Survey. The department’s Office of Inspector General (OIG), an independent oversight body, audits, investigates, and evaluates DOI programs and activities. DOI’s OIG, like other OIGs, historically has uncovered fraud and mismanagement most often after it has been committed. The office’s new leadership team, which took control in 2009, wanted to be more proactive and prevent fraud before it took place. To achieve this goal, leaders sought a more transparent and collaborative approach to management. Acting Inspector General Mary Kendall also wanted the OIG to be better able to identify high-risk, high-impact programs, thus enabling it to apply its limited resources (a $49 million budget and staff of 285) more effectively. The Kaplan-Norton management system and Execution Premium Process (XPP) seemed to be the answer for facilitating this proactive, strategy-focused, and balanced approach.

Rather than allow the Deepwater Horizon oil rig accident to derail the new strategy management program, OIG leaders reinforced the importance of completing the strategy implementation. In February, Kendall and Chief of Staff Steve Hardgrove began implementing the XPP. Within five months, the OIG had developed a change agenda, strategy map, and BSC. In June, it held its first quarterly strategy review meeting (SRM). A Strategy Management Office is already in place. How did OIG do all this so quickly? Motivation was a big factor. Besides that, five teams worked in parallel: the leadership team; a core team; a development team, which hammered out the strategy map; a validation team, which obtained bottomup feedback and buy in; and a measurement team. The teams achieved a major implementation milestone nearly every week, with one team creating output and another reviewing and editing it. Following the April 22 Deepwater Horizon oil rig accident, the Department of Justice requested that the OIG lead a multiagency investigation; at the same time, DOI Secretary Salazar requested an in-depth internal review. Rather than allow the catastrophe and the requested work to derail the new strategy management program, OIG leaders reinforced the importance of completing the strategy implementation. “All the elements on our strategy map came together on the local and regional level,” says Hardgrove, emphasizing that cross-functionality and communication “were a requirement for [a proper response to] this accident.” The incident “forced a total blend” of OIG’s audit and investigation sides. “Because senior staff was thinking more strategically in planning, when the spill occurred,” OIG was able to devote its regional resources to it. “Now, more than ever,” he adds, “we need to remain disciplined and focused on our core strategy.”

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USAMMA’s process maps are “essentially flow charts at different levels,” according to Lapham. “They indicate how you get from point A to point B, and who does what in what order.” For example, an equipment maintenance process map would describe how to inspect equipment, how to turn it in if something is malfunctioning, and how to procure replacement equipment. A process map can be as specific or as broad as is needed, but putting into place upstream process metrics (early warning systems) as well as results measures is essential. Once you’ve identified metrics that control for time, cost, and quality, says Lapham, you align them to the higher-level BSC measures to create dashboards, which in turn allows you to manage the strategically important operational-level processes.

Lapham knew that applying discretionary dollars to performance excellence initiatives would enable USAMMA to optimize its mission dollars and improve organizational quality. Integrating and Improving Financial Planning One of USAMMA’s major process improvement initiatives—and strategic priorities—is redesigning its portion of the Planning, Programming, Budgeting, and Execution (PPBE) process. The PPBE is the Department of Defense process for linking strategy and budgeting. Planning, done at the highest level, involves multiyear forecasts. In Programming, leaders develop the financial requirements to support the major endeavors (programs or sets of projects) identified in the Planning phase. Budgeting is where reality enters—where the ideal goals must be reconciled with the realities of fiscal constraints, including allocation changes that occur year to year. Such a long time horizon, during which fiscal realities are subject to change, makes initiative planning a tremendous challenge for subordinate agencies. Five or more years is longer than the average military person’s tenure at USAMMA, and the long-range Planning, Programming, Budgeting efforts occur as previously planned projects are being executed. A further complication: money is allocated to various accounts intended for certain categories, and special appropriations sometimes fall outside the current requirements or priorities. So funding inputs do not necessarily match USAMMA’s actual operational needs. Besides its “mission dollars” (the funding USAMMA receives to conduct its core activities), USAMMA has discretionary funds—its “management money”— that it uses to execute its performance excellence program. Until recently, USAMMA lacked systematic procedures for maximizing its discretionary dollars. Lapham knew that applying discretionary dollars to performance excellence

initiatives would enable USAMMA to optimize its mission dollars and improve organizational quality. Today, the agency’s automated BSC and strategy map help leaders see the ramifications of how they apply discretionary money—for example, in initiative portfolio management. The automated system also helps manage contract vendors. “Instead of constantly changing underperforming suppliers, which we can’t always do, for policy or regulatory reasons, we can manage that relationship better—or bring the supplier into the fold,” explains Lapham. USAMMA’s PPBE approach and best use of discretionary dollars will also help it optimize its IT budget. Although IT is funded through core dollars, those funds don’t fully cover the internal systems USAMMA must design for itself for future needs.

of what we believed we knew.” These assessment and feedback processes are now part of USAMMA’s process improvement strategy. The baseline from this initial assessment provided important input into USAMMA’s recent annual strategy refresh.

Extending the View, Embedding the Approach USAMMA’s performance management system is, Lapham notes, a work in progress. As operational processes are modeled and improved, the agency is establishing operational dashboards to monitor performance and results, including continuous improvements. The organization is at a pivotal point in its integrated strategy implementation path, moving from “project” to “way of life.” To institutionalize strategy management and its governance system—and to safeguard it from the vagaries of recurring leadership change every two years—USAMMA is focusing intently on bolstering the processes, technologies, and cultural commitment that will firmly establish this perfor-

Benchmarking with Baldrige

mance system for future longevity.

To gauge how well the organization is performing—and to identify important performance gaps—USAMMA decided in late 2009 to conduct its first internal assessment using the Malcolm Baldrige National Quality Award criteria. To ensure the assessment was performed objectively and to exact standards, USAMMA relied on a third-party adviser to create an organizational profile and an in-depth assessment for every aspect of its operations, based on the seven Baldrige categories. The exercise revealed three performance gaps: customer focus and information sharing processes, process maps and measurements (that is, having management control systems that make use of the maps and measures), and management of product data and information. None, according to Lapham, was surprising; the meticulous examination offered “a detailed confirmation

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Michael Brazukas, a managing director, is based in Palladium’s Washington, D.C., office. He is responsible for Palladium’s government, military, and mission-based organization business.

To learn more BSR has published several articles on the BSC and strategy implementation at military organizations worldwide; consult the BSR Index, available free via download at web.hbr. org/se/index.php. Articles on implementations within the U.S. Army include “It’s in the Army Now: The U.S. Army’s Scorecard-Based Transformation,” BSR September–October 2003 (Reprint #B0309B); and “Mobilizing for Well-Being: The Army Medical Department’s BSC Transformation, BSR May–June 2003 (Reprint #B0305C).

Continue the dialogue Michael Brazukas is leading discussions online in the private executive forums of XPC. Visit www.thepalladiumgroup.com/bsr/brazukas. Reprint #B1009B

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STRATEGY MANAGEMENT OFFICER

Beyond the OSM: Strategy Execution Champions Help Foster Strategy Execution Capability By Marina Mier y Terán Cuevas, Partner and Director of Knowledge Management, and Maria José Ortega Moncada, Partner and Director of Marketing, Ilimite Consulting (Mexico City) As architect, process custodian, and integrator, the Office of Strategy Management (OSM) plays an instrumental role in enterprise strategy management. But it can’t do the job alone. And while cross-functional theme teams perform many on-the-ground aspects of the strategy management function, there’s yet another important set of players in strategy management: strategy execution champions. These individuals, drawn from every key operating area and SBU across the enterprise, serve as the “arms” of the OSM, helping execute and sustain the strategy. The authors, former strategy professionals at 2008 Palladium BSC Hall of Fame winner Grupo Modelo, discuss this approach—one they are now helping organizations throughout Latin America implement. In these times of global economic turbulence and constant change, the ability to implement and execute strategy— and, most important, sustain it—takes on new significance. As Robert Kaplan and David Norton have written extensively, the Office of Strategy Management (OSM) is a key mechanism for implementing strategy— not merely through its architect/process custodian/integrator role but also in a larger sense by helping organizations adapt strategy to environmental changes, shifting customer requirements, and evolving organizational capabilities. However, the OSM cannot fulfill these roles by itself. Even large, well-staffed OSMs lack the ability to penetrate and execute in each business area and SBU. The most daunting organizational challenges require human intervention and action at every level. We believe that organizations need a network of people who can act as the “arms” of the OSM, endowing each area or SBU with the ability to unlock execution capacity and ensure the strategy’s sustainability.

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Our solution: strategy execution champions (SECs). A network of SECs augments the OSM’s ability to support every aspect of strategy management. These individuals are, in effect, the engine within each business area that generates the energy needed to fulfill business goals. Strategy execution champions are drawn from throughout the organization—from key functional areas such as strategic planning, finance, and IT, as well as from business lines. Some SECs are subject matter experts; others, group heads, are expert in or accountable for the operations, performance, and business management of their given area. Along with the OSM, they offer long-term guidance and support, and create a shared vision of success. By overseeing the appropriate implementation of the strategy within their own areas (and, as a network, collectively across the enterprise), they help the OSM fulfill its role. And by contributing to making the strategy sustainable within their own areas, they contribute to making it sustainable at the organizational level.

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In some companies, the role of SEC is already being performed by someone in each area. But it is usually not a formalized role, one with established processes and procedures necessary to support the OSM. At Grupo Modelo, we instituted an SEC team to help us monitor strategy execution at all levels of the 38,000-person company. Without it, the task would have been virtually impossible. Today, we are building networks of SECs for several clients. Implementing an SEC network provides multiple benefits for an organization. Boosts execution capability. Most OSMs are staffed by a handful of individuals, many of whom juggle this responsibility with a “day job.” As a separate group, the OSM has a limited ability to engage actively in the implementation and management of strategy throughout all areas of the enterprise. Assigning an SEC to each area or SBU extends the reach of the OSM. As “locals,” such individuals have greater autonomy and freedom of movement within their business areas than outsiders have. They are also knowledgeable about their areas’ needs, so they are better equipped to identify strategic issues and raise them credibly with the executive committee for resolution. Ensures the sustainability of the strategy. Formalizing the strategy management process throughout the organization helps mitigate the risk of employees viewing strategy as yet another project or merely the subject of an annual meeting. The SEC approach engages more people, involving them in specific strategy-related activities throughout the year that integrate and synchronize with other key processes. Improves communication and cooperation among business areas and SBUs. A network of SECs ensures that the organization’s functional areas get the representation they need. This helps uncover critical issues in a timely manner, improving decision making and enabling the organization to be

Strategic Theme Teams vs. Strategy Execution Champions:What’s the Difference? A strategic theme team is by nature cross functional; it is responsible for achieving the goals of a given strategic theme from the enterprise strategy map. A strategy execution champion is responsible for monitoring strategy execution within a given business or functional area or SBU. Theme teams and SECs work together to create synergies and close operational gaps. In that respect, they complement each other. And we believe that both roles are necessary.

So how do they differ? Strategic theme teams view strategy in terms of theme “blocks.” Generally, a senior executive is appointed “owner” of the theme to establish accountability. A value gap is set for each strategic theme. Theme teams develop synergies among multiple functional areas and SBUs and conduct cross-functional activities to accomplish their goals. They organize their efforts by cascading strategic themes throughout the organiza-

more agile and flexible amid a changing environment. Promotes accountability. The presence of an SEC network reflects the organization’s commitment to achieving its strategic goals. Each SEC assumes responsibility for the Balanced Scorecard within his or her area and pushes objective and initiative owners to develop ideas for constant improvement.

What Do Strategy Execution Champions Do? In some organizations the OSM is charged with integrating (in a timely, sequenced manner) the various business and operational processes and functions in order to align operations to strategy. This is a tremendous responsibility for what is usually a modestly staffed group. SECs can provide significant support, in particular by • Managing and communicating the strategy in their respective areas • Overseeing their respective areas’ strategy-related activities and communicating constantly with the local leadership team about issues related to strategy management

tion’s strategy maps.

• Serving as a liaison between the OSM and their respective areas

Strategy execution champions view

• Conducting strategy analysis meetings

strategy by functional area. Each SEC supports his or her area’s director by monitoring strategy execution at the local level. SECs are expert in their areas, which means they can better understand and manage strategy. As a result, they are also better equipped to uncover any stumbling blocks or other problems related to strategy execution in their areas. Finally, having an SEC network ensures that functional areas are represented in the OSM.

• Uncovering strategic challenges, such as aligning SBU goals with corporate’s or jump-starting a stalled initiative Let’s look at SECs’ responsibilities within specific strategy management processes.

Contributing to Strategy Development Most companies have a department or area that is responsible for strategic planning or strategy development. In some cases, it is the OSM itself. SECs can enrich the strategic planning process through their knowledge of their own areas. Information they provide can help substantiate the various analyses, internal and external, used in the planning process that help validate and define the organizational strategy. SECs also play a feedback role, disseminating and promoting the mission, vision, and values that are the foundation of the new strategy within their respective areas of the company.

Contributing to Strategic Planning Once the strategy has been developed (or updated), the OSM is responsible for overseeing its translation into operational terms through the BSC. However, before the enterprise BSC is finalized, SECs should point out any concerns or problems—for example, a missing objective or misaligned goal—that, if remedied up front, could help improve the articulation of strategic objectives or sharpen key performance indicators. Such input advances the organization’s strategy management maturity.

Aligning the Organization

Aiding in the Design of the Strategy Cycle Every year, the OSM incorporates any missing processes into the strategy planning cycle to improve the alignment of operations with strategy. SECs support the OSM in this task by identifying any such key processes in their respective areas that may affect the strategy cycle. Once the cycle is updated, they help integrate these processes in an orderly manner and monitor them (and their de-

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liverables) throughout the year. Consider, for example, the individual employee performance evaluation process; it can begin only after strategic goals have have been defined (otherwise employees’ performance will not be aligned to the strategy).

Here’s where SECs play their most active role—a role we consider a critical success factor for strategic alignment. Once the enterprise BSC is updated, SECs begin cascading the strategy to their respective areas. Among their responsibilities is identifying objectives and indicators that could be shared by two or more areas. They hold interdepartmental or inter-unit meetings to validate the

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value proposition of the support areas and SBUs as well as define how each area contributes to enterprise strategy. SECs also use the strategy map to communicate everyone’s contribution to the strategy, thus helping align the individuals’ performance to the business’s goals. Although the individual employee performance evaluation process is generally managed by human resources, the OSM and the SECs are both responsible for ensuring the alignment of individual employees to the strategy. Specifically, SECs should • Put in place mechanisms that promote the alignment of individual employees’ performance to strategic objectives; for example, a performance matrix that matches strategic objectives and initiatives with strategic job positions • Ensure that the goals listed on individual employee performance evaluations conform to the company’s established goals • Ensure that incentives are based on performance Without well-defined, aligned, and approved strategic goals, it is difficult to begin implementing projects and therefore to measure performance and progress toward the strategy. SECs also play an important role in the goal-setting process. They help • Ensure that financial strategic goals are aligned to the budget • Define targets for all indicators, both financial and nonfinancial • Ensure that the goals identified for their respective areas help advance enterprise goals • Define targets for all indicators, both financial and nonfinancial • Make sure that goals are appropriately ambitious and yet achievable • See that goals do not change constantly so that the organization can gain stability in its strategy management

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sample topics for strategy execution champion meetings January meeting

• Preparing for employee performance evaluation process • Updating BSCs and shared objectives among areas and units • Setting the new strategy management cycle

March meeting

• Developing the annual strategy communication plan

May meeting

• Making any necessary adjustments to the individual performance evaluation process

July meeting

• Preparing for annual strategy offsite

September meeting

• Preparing for budget process

November meeting

• Getting ready for workshops to update unit and departmental BSCs • Defining and finalizing strategic goals • Defining and prioritizing strategic initiatives

FIGURE 1: A RECOMMENDED CALENDAR OF MEETINGS FOR STRATEGY EXECUTION CHAMPIONS Besides participating in strategy review meetings, SECs should hold separate meetings to share information and best practices related to strategy management events that occur throughout the year.

process. When adjustments are made, SECs ensure they are communicated in advance to the OSM, to maintain alignment. Finally, SECs complement the work of the project management office by ensuring that projects are in fact contributing to the strategy. They do so by measuring the projects’ performance against key performance metrics at strategy review meetings (SRMs).

Supporting Strategy Review Meetings At many companies, the OSM is responsible for coordinating the SRMs. This means that considerable time is taken up with preparation activities, often at the expense of performance analysis. The result: SRMs can end up merely as performance reporting meetings instead of forums where new ideas—ones that might advance performance or the strategy—can flow freely. Each SEC should be responsible for developing and moderating the SRM in his or her area. In that way, the executive team can focus exclusively on strategy. Because SECs promote the sharing of strategy management best practices across their areas, we recommend that the network hold meetings throughout

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the year in addition to the calendarrelated, strategy cycle meetings. For example, every January the organization may be preparing for individual employee performance evaluations as well as getting ready to update the BSC and set the strategy management cycle calendar for the year. To ensure that all SECs are aligned and coordinated in these efforts, they should convene for a briefing by the OSM and to coordinate among themselves. (See Figure 1.)

Selecting Strategy Execution Champions What competencies must SECs possess? Besides having extensive knowledge of their individual department or area, they must first and foremost have strategic vision and leadership and must be proactive. They should also be results oriented, persuasive, and adaptable to change. They should value and demonstrate teamwork, have strong interpersonal relationships, show planning acumen, and possess good oral and written communication skills. SECs should be selected by the directors of each area or SBU and confirmed by the CEO. In addition to having the appropriate knowledge and skills, SECs need to have authority. Their authority is not

Designing the Strategic Cycle

the software used for SRMs, and the elements of the individual employee performance process. The CEO should kick off the program to reflect the highest level of support for and sponsorship of this new role.

Developing the Strategy

Planning the Strategy

Aligning the Organization

Aligning the Organization

Validating the Strategic Goals

Updating the area’s BSC

With a network of strategy execution champions to complement your OSM, you can bolster your organization’s execution capacity and make strategy management the critical process it needs to be.

Supporting: Communication Plan | Performance of the Strategic Initiatives

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Marina Mier y Terán Cuevas cofounded Ilimite in the fall of 2009. Ilimite’s clients include Roche Pharma, Hipotecaria Total, Infonavit, Sociedad Hipotecaria Federal, and Conagua. She is a former senior manager of strategy management at Grupo Modelo, a 2008 Palladium BSC Hall of Fame winner.

SRM

FIGURE 2: AN INTEGRATED CALENDAR OF SEC MEETINGS This timeline indicates where the SEC network’s meetings would fall within SRMs and overall strategy management events.

necessarily dependent on their seniority; it’s a matter of their competence— that they are respected and therefore credible and influential.

though, every area or SBU should have at least one SEC as well as someone from her own team who helps the SEC perform the administrative work.

In some companies, some candidates have the requisite knowledge and skills but lack the necessary authority. The result is that operational activities get done, but decisions are made slowly. Elsewhere, the SEC may have the requisite authority (so decisions aren’t dragged out) but lack the hands-on skills that allow operational activities to be carried out promptly.

Before they delve into their new role, it is important to explain to SECs the purpose and functions of the SEC network and their new responsibilities. Explain the benefits of SEC service, not only to the company but also to each of them personally and professionally: having an integral vision of the organization and its goals, learning to be a change agent, getting exposure and being visible to management, facilitating decision making, and learning a new methodology (the BSC).

Because it’s not always possible to get the right mix of authority and competencies in every SEC candidate, it’s a good idea to strengthen the SEC network by adding one or more people who can support operational or administrative activities, such as scheduling strategy analysis meetings and updating scorecard data. How many SECs will you need? That depends on the nature of your organization and on the needs of each area. In an organization where production is the core business, there might be three SECs in the production area and only one in each other area. In our experience,

Address what is generally their biggest concern: how much of their time this new role might take. There are several processes throughout the year during which they’ll need to support the OSM, but the main event is SRM development and follow-up. (See Figure 2.)

Maria José Ortega Moncada, Ilimite’s marketing director, was formerly strategic management coordinator at Grupo Modelo.

To learn more Two related articles we recommend: “Building the Theme Team: A Step-by-Step Guide,” BSR May–June 2010 (Reprint #B1005D); and “The Office of Strategy Management: Emerging Roles and Responsibilities,” BSR July–August 2008 (Reprint #B0807A). You can also read about Grupo Modelo’s strategy management program in the Balanced Scorecard 2009 Hall of Fame Report, available at web.hbr.org/se/hall-of-fame.php.

Continue the dialogue What do you think of the concept of strategy execution champions? Share your thoughts with other strategy professionals—and your questions with the authors—at www.thepalladiumgroup.com/bsr/cuevas. Reprint #B1009C

A training session is a valuable first step. Here, you can also address their questions and concerns and present them with the tools they will need to fulfill their new roles, such as the Balanced Scorecard methodology,

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From Civil Service to Customer Focus: How Public Sector Organizations Energize Their Workforce Around Strategy By Lauren Keller Johnson, Contributing Writer In the best public sector organizations, “good enough for government work” doesn’t cut it anymore. These high-performing entities know how to unleash employees’ passion to serve—replacing the traditional sense of entitlement with a sharp focus on the customer. Private sector organizations, take note. It’s no secret that many public sector employees feel a sense of entitlement when it comes to their jobs. And why shouldn’t they? Their employers seldom go out of business, and job security tends to be greater than in the private sector. Yet many public sector employees also nurture a genuine desire to serve society. But unleashing that passion to serve can prove challenging in organizations characterized by complex bureaucratic structures and complacency in some of the ranks. Nevertheless, some public agencies have managed to overcome these challenges. Using the Balanced Scorecard as the central mechanism, they implement practices that transform the stereotypical civil service mind-set to a laser-sharp focus on the customer. Energized around the strategy, employees identify with the organization, rather than with their own jobs or areas. And they make a measurable, positive difference for their constituents. Consider the following examples from organizations that include Palladium Balanced Scorecard Hall of Fame members.

Hold All Employees Accountable for Satisfying Customers All employees—not just higher-ups— must be accountable for satisfying customers. Atlanta-based Fulton County School System (a 2003 Hall of Fame

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winner) is an apt example. The organization faced big challenges, including increasing racial, ethnic, and economic diversity in its student body, as well as size (83 schools, 9,500 employees, 73,000 students, and a $600 million budget). Previously, Fulton County had used a bottom-up management approach, aggregating individual schools’ priorities to determine systemwide goals. Yet many of these goals weren’t measurable. The school system then adopted a management approach based on the Malcolm Balridge Award criteria, but failed to link it to clearly defined performance improvements. When executives decided to adopt the BSC, they made some valuable changes, including clearly defining goals. But the one that may have helped most to focus the workforce on its “customers” was the adoption of top-to-bottom accountability. Fulton County decided to hold everyone, and not only teachers, accountable for promoting student achievement. It began evaluating all staff—teachers, principals, cafeteria managers, school bus drivers—against scorecard measures centering on everything from strengthening students’ critical thinking skills to ensuring that they were well nourished and arrived at school on time and safely. The collective effort paid off. As just one example, in five years, students’ SAT scores went from meeting the national average to exceeding it by 23 points.

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Another way to hold all employees accountable for satisfying customers is to provide rigorous training and developmental experiences, along with no-holds-barred feedback on strategic performance. Florida’s Miami-Dade County government is a case in point. After interest in measuring performance within public sector organizations intensified during the late 1990s, the county assembled a blue ribbon panel to develop a strategic plan—its first. The panel gathered community leaders’ input on the plan, which resulted in a heavy emphasis on resident satisfaction. After launching a BSC program to execute the new plan, the county began providing all new employees—and not just customer-facing ones—with online customer-service training to help foster a customer-service mind-set throughout the entire organization. In addition, it encouraged departments to design their own leadership development opportunities for managers. For instance, the Solid Waste department began rotating who conducts each of its strategy review meetings. These experiences encouraged people to feel a sense of ownership of their scorecard and to see themselves as leaders. To generate performance feedback for employees, Miami-Dade also began conducting county resident satisfaction surveys every two to three years and launched an initiative akin to a secretshopper program. “Shoppers” phone a county department, ask questions, and evaluate the quality of the services they’ve received. Findings are cycled back to employees so they can address any problems. These efforts have led to concrete improvements in service quality and resident satisfaction. For example, in three years, 13% more residents expressed satisfaction with the quality of road signs, and the number of complaints regarding trash removal fell dramatically. Customer perceptions

Balanced Scorecard Report A joint publication of Palladium Group, Inc., and Harvard Business Publishing 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. Joshua Macht Group Publisher Harvard Business Review Group Executive Editor Randall H. Russell VP/Director of Research, Palladium Group, Inc.

of employees as courteous and professional also improved.

Provide the Right Incentives Incentives also play a key role in focusing employees’ attention on customers. Take Busan Metropolitan City (BMC), a 2008 Hall of Fame inductee. South Korea’s second largest city, BMC had become a semiautonomous municipal government, funded in part by the federal government and in part by city tax revenues. This change brought new challenges. For instance, heightened media coverage raised citizens’ awareness of government activities and policy, which in turn raised their service expectations. Yet a tradition of guaranteed lifetime employment and a seniority-based reward system had left the workforce uninterested in mustering the effort needed to meet those challenges.

Editor Janice Koch Palladium Group, Inc. Copyright © 2010 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. Harvard Business Publishing is a not-forprofit, 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. Our expertise in strategy management, performance management, and business intelligence helps our clients achieve an execution premium. Our services include consulting, technology, conferences, communities, and certification. 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.

After the Korean central government adopted the BSC and introduced it to municipal governments, BMC volunteered to be Korea’s first city user of the methodology. The municipality defined new goals centered on improving the quality of life in Busan through more transparent, citizen-oriented management and customer-service excellence. It then introduced incentives to ensure achievement of those goals. For instance, it established “job performance contracts” linked to specific scorecard objectives and updated the contracts annually. Bonuses and promotional opportunities for department heads and team members were tied to targets, and performance against key objectives constituted 25% of the overall performance evaluation of managers at or below the assistant manager level. Such initiatives translated into enhanced quality of life in Busan. For example, over three years, customer satisfaction rose, as did the number of jobs created for the elderly and the financial benefits per citizen (revenues divided by number of citizens).

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Leverage Information Technology Performance management technology has further enabled savvy public agencies to rivet employees’ attention on customer service. Busan excelled in this area as well. The city put in place a strategy information system it called Danuri (“embrace everything” in Korean). Danuri integrated its customer relationship management (CRM), business process management, and knowledge management systems, and was accessible to all citizens. Indeed, citizen panels began regularly using Danuri to evaluate BMC’s performance. The city also started commissioning yearly customer satisfaction surveys of employees. Citizens who visited City Hall with a public service purpose and who received city services provided their input, along with some who were selected randomly. BMC fed the data into Danuri’s CRM component and counted evaluations from citizen panels and survey results in employee performance assessments.

Link the Budget to CustomerRelated Strategic Initiatives By linking the budgeting process to strategic initiatives related to customer service, public sector organizations stand an even greater chance of fostering a customer focus among employees. The Barcelona City Council (a 2010 Hall of Fame winner) offers a good illustration. Barcelona consists of 10 sectors (such as social services, economic development, and education and culture) plus 10 geographic districts; employs 13,000 people; and manages a budget of €2.7 million. It adopted the BSC to surmount such challenges as heightened demand for more convenient services from residents, increased demographic diversity thanks to the open borders that came with membership in the European Union, and the need to sustain tourism (a key revenue source) in the face of the global recession.

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As part of its scorecard program, the city began linking its budgeting process to its strategic initiatives. These initiatives were developed specifically to meet the political mandates of the municipal government in power, which changes through elections every four years. Beforehand, managers had simply referred to the previous year’s budget to create the current budget. But now they had to show how the funds they wanted would support execution of specific strategic initiatives. And they had to answer questions about how effectively they were using those funds. To enhance citizen satisfaction, Barcelona launched initiatives related to improving street cleanliness and assigned funds to the projects. If satisfaction with street cleanliness declined, the manager responsible for that initiative and that part of the budget faced questions, such as, “Are you spending all of the funds allocated for this initiative?” and, “Are you under budget?” If customer satisfaction met or exceeded targeted performance and the manager had not used all the allocated funds, discussion centered on how unused funds could be channeled into initiatives that weren’t performing as well. Thanks to such changes, Barcelona’s senior managers—who previously demonstrated lukewarm motivation—now take a keen interest in improving their performance. If results on a particular strategic objective (such as customer satisfaction with speed of service) are disappointing, district and sector leaders demand detailed performance data, as well as assistance in analyzing potential causes of the problem.

Engage Customers in Performance Improvement Some exemplary public entities have actively engaged customers in their performance management efforts. Take Iloilo City in the Philippines (a 2009 Hall of Fame inductee). The city adopted the

BSC with the help of the Institute for Solidarity in Asia, a nonprofit organization promoting good governance throughout East Asia’s public and private sectors. Iloilo’s goals included addressing problems such as inefficiency in public services, citizen perceptions of government workers as incompetent, and employee resistance to improvement initiatives. From the start, the city involved its constituents in its performance improvement drive. It established a 72-member multisectoral coalition to develop Iloilo’s charter statement, strategy maps, and scorecards. This coalition also began administering execution of the strategy, in part by formulating and monitoring strategic initiatives. Its members hailed from a diverse array of customers, ranging from youth groups, nongovernmental agencies, business clubs, and the Chamber of Commerce to media, village governments, environmental groups, and civic clubs. Involving constituents has paid off handsomely. One example is an initiative centered on automating the businesspermit application and approval process to improve efficiencies and make the city more business friendly. The effort reduced permit-processing time by 43% and lowered administrative costs by 63%. The number of business permits renewed rose 53%, and revenues gathered from the process increased 57%. Transforming a civil service mind-set into a laser-sharp focus on the customer isn’t easy in a public sector organization. But it is possible—with the application of a few powerful practices—to put the “serve” back in “civil service.”

To learn more Each BSC Hall of Fame organization cited here is profiled in the Hall of Fame report published in the calendar year following its induction. Visit web.hbr.org/se/hall-of-fame.php.

Getting Customer Focused Hold all employees accountable for satisfying customers. • Identify how employees at each level of your organization can help meet key customer-related needs. • Establish performance metrics, and help employees track progress on them.

Provide the right incentives. • Link job performance goals to specific scorecard measures. • Tie bonuses and other incentives to performance on the identified measures.

Leverage IT. • Provide an online picture of performance and feed data into the system in real time, if possible. • Give employees and customers access to the system.

Link the budget to customerrelated initiatives. • Require managers to show how the funds they’re requesting will support achievement of strategic initiatives designed to improve customer service. • Challenge managers to justify how they’re using those funds.

Engage customers in performance improvement. • Involve constituents in defining your organization’s strategy, objectives, and measures. • Make constituents active partners in executing strategy by involving them in defining and managing customerrelated strategic initiatives.

Reprint #B1009D

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