You can have the best strategies in the world, but they are only as useful as the level of their execution. Yet a majority organisations still struggle to blow life into their outlined strategic objectives. Why might this be so?
Creators of the Balanced Scorecard, Robert Kaplan and David Norton, blame this general failure on four common limitations. They classify them as Vision Barrier; People Barrier; Management Barrier; and Resource Barrier.
The vision barrier arises from the fact that in many organisations, very few employees, usually the top management, understand the organisation’s strategy beyond being able to recite the vision statement. The rest are in the dark.
This is the case because many organisations are still organised in ways similar to those formed in the industrial era, where unquestioned instructions travelled from the top ‘office’ to the bottom ‘factory’ for mechanical execution without question.
Such a structure limits employees’ understanding of where the company is really heading. This restricts the ability of the real executors of work to make informed decisions. It is said that in any standard organisation, only five per cent of the workforce are in the know about the overall strategy. This is a recipe for a complete breakdown in strategy execution.
The people barrier concerns compensation of staff, and more so about incentive or reward schemes that are pegged on purely financial targets. In many organisations, employee incentives are pegged on the achievement of short-term financial goals. The problem with such incentive schemes is that employees will also focus only on those short-term financial goals. This will be at the expense of long-term pursuits. Studies show that on average, only 25 per cent of managers appreciate the wisdom in linking incentives to the long-term organisational strategy.
As concerns management barrier, various surveys have showed that in many organisations, staff do not approve of the way management delivers information. Employees cite boring presentations that talk down to them instead of engaging discussions for exchange of ideas and debate. Such an environment creates a communication breakdown, which leads to an unhealthy gap between general staff and senior management.
The resource barrier is about the gap between budget and strategy. Studies have shown that up to 60 per cent of organisations fail to link their budgets to their strategies. The failure arises from the fact that the budgeting and strategic planning processes are done differently and frequently by different teams. There is no way strategy and budget will be in sync when the teams creating them are not speaking the same language.
How can all these barriers be tackled at once?
The Balanced Scorecard is designed to overcome them. In overcoming the vision barrier, the Balanced Scorecard translates the organisation’s strategy into quantifiable and manageable objectives, measures, targets and initiatives. This provides meaning to the usually broad vision statement.
In developing a Balanced Scorecard, the executive team has to interpret vision statements and objectives into measurable values. For instance, if an organisation states in its objectives that it targets to deliver products of superior quality, in the Balanced Scorecard, this statement will have to be specified as, for instance, “deliver products that are 98 per cent free of defects”. The introduction of a value to the objective makes it quantifiable, and provides clarity to the employees making the products.
The Balanced Scorecard overcomes the people barrier when it is cascaded down the organisational structure. This means that every level of the organisation develops a scorecard that measures and manages its daily activity, and aligns it to the overall organisational objective. The cascading allows employees at every level to participate in the process, thereby exposing them to a deeper understanding of the connection between their daily tasks and the organisational strategy. This understanding then allows section managers to link incentive and reward schemes to the achievements of the strategic objectives outlined in their departmental scorecards.
The Balanced Scorecard, by its design, ties the budgeting and strategic planning processes together. The development of the Balanced Scorecard itself requires that objectives, measures, and targets are connected to the allocation of all the necessary resources (financial, human capital, equipment and so on). This removes the resource barrier.
The management barrier crumbles when the Balanced Scorecard introduces strategy-focused management meetings in which discussions are centred on the strategic journey and how it can be tackled, rather than the presentation of drab charts that tell depressing stories.
Thus, the worth of the Balanced Scorecard, if applied with commitment, is its ability to help business leaders to overcome the general challenge of effective execution of strategy.
Research has shown that a 35 per cent improvement in strategy execution results in 30 per cent boost in company shareholder value.