In this business environment, delivering shareholder value consistently
requires more than just managing revenue and cost. Today, in addition to
financial measures, companies need to manage a variety of operational measures.
These operational measures, such as customer satisfaction, defect rate,
response time and new product introduction, while not directly influencing
the organisation’s financial performance, serve as ‘lead indicators,’ enabling
them to sustain profitability in the long term.
The BSC provides
an effective tool to capture these financial and
operational measures (click
here for graphic). It specifies goals from
four perspectives — customer, internal, learning
and financial — and outlines the metrics for measurement
and review of strategic initiatives. The BSC could
be developed for the corporate as a whole and
further disaggregated to the small business units
and profit centres.
Linking
measures to individual metrics: the PMS
Companies don’t implement strategy; people do. To achieve operational goals
such as cycle time, quality, productivity and costs managers must identify
measures that are controlled or influenced by employee actions. The strategic
initiatives of the company need to be mapped clearly to the process owners
and responsibilities defined.
The PMS provides
a powerful tool to link such organisational goals,
objectives and initiatives to an individual’s
metrics (click
here for graphic), and it has to be evolved
through a highly interactive process, since it
involves multiple linkages across business units
and departments.
There
could also be cases of conflicting objectives. For instance, a sales manager’s
objective of providing outstanding customer service could conflict directly
with a logistics manager’s objective of minimising pipeline inventory. The
challenge in evolving the PMS is to gauge the scope and extent of such interdependencies
and negotiate acceptable tradeoffs while ensuring seamless alignment.
The combination of the BSC and the PMS enables a company to cascade the
organisation’s strategy and key initiatives into goals and metrics for individual
employees.
Integrating
targets with measures: the AOP
The AOP provides numerical targets for each of these goals and metrics.
It clearly specifies measurable targets for revenue, cost, key initiatives,
tactical moves and action points for the coming year. A review calendar,
comprising monthly/quarterly targets and critical milestones, could be evolved
from the AOP. By monitoring these milestones top management can gain a clear
view of the organisation’s progress on implementing its strategic plan.
Case study: Strategy deployment at TCI Limited
To understand how the system works, consider the experience of a large chemical
manufacturer, say, TCI.
During the strategy-formulation exercise, TCI realised that to maintain
the growth momentum it would need to develop the export market. However,
sales and marketing continued to focus on existing domestic customers, resulting
in poor export growth. The shift in strategic direction was not adequately
translated into a corresponding shift in the goals and activities of individual
managers.
TCI decided to revamp its strategy-deployment
process (click
here for graphic). The strategic objectives
were redefined using the BSC and cascaded into
individual activities and metrics. Simultaneously,
the AOP was developed to allocate resources apart
from setting quarterly targets and critical milestones
for the current year.
Using this basket of three tools, TCI evolved an annual review calendar
to monitor progress against targets, both financial and operational. TCI
has since successfully deployed its strategy and progressed rapidly in its
chosen direction.
Enablers
for compliance
For the success of the strategy-deployment process, organisations need to
put two important enablers in place:
Management
information system: Information systems play an invaluable role in helping
executives monitor progress against targets and track departures from plans.
Having a well-designed information system enables executives to analyse
variances, diagnose problems, review achievement of key individual targets,
and take timely corrective action, thus ensuring overall achievement of
goals.
A robust
appraisal and incentives process: Companies need to instil a culture
of performance and entrepreneurial expertise. An objective and transparent
individual-appraisal system, coupled with performance-linked rewards and
consequences, is essential to reinforce the alignment of personal effort
with organisational needs.
"We
strategise beautifully, we implement pathetically," said an auto-parts
company executive. While a well thought out, unique business strategy is
essential for any organisation, its effective deployment is crucial for
getting results.
The framework
described above, along with the enablers, provides organisations with the
right tools to effectively deploy strategy. Using them, managers can foster
in their organisations a culture that stays focused on the company’s objectives,
integrates all critical activities, identifies clear targets and responsibilities,
and involves everybody in the effort.
