Formation of BSC teams
Commercial organizations have been trying to go through changes for ages. Why do so many business experts believe that new initiatives should be accompanied by changes in evaluation system offered by Balanced Scorecard? It is because indicators system adaptation to changeable organization structure is especially important for success. Experts in balance scorecard recommend the following: if financial managers and company chairmen object to changes they do not have to make loud declarations or express their viewpoints in a written form. It’ll be enough just to keep evaluate and results and report the according to the all system. In the end the initiative will fail. It often happens that managers are rewarded for excellent short term results while claiming their adherence to long-term goals. That’s why there is nothing strange in the fact that managers do everything possible to obtain excellent short term results, and the same time doing nothing in the long term perspective.
Business owners and top managers which have implemented Balanced Scorecard to use new strategies understood necessity for and you evaluation system. They viewed it as a powerful tool to implement you initiatives.
Managerial mentality in the past is the way of thinking typical for controllers who are analyzing past, but not pioneers who look in the future. Financial indicators do not fully reflect company plans. Most business owners and top managers want to have such criteria which will make it possible to plan ahead. Moreover, such criteria should be related to everyday actions of company employees. At that, personnel of the company must be personally interested in implementation of Balanced Scorecard.
The team of top managers in charge of BSC implementation becomes a driving force of changes in the company. During the process of Balanced Scorecard implementation a special team is being formed which aims at strategy implementation. Balanced Scorecard offers tools to transfer strategy and its components to the operational level. Words are not enough to persuade company personnel in necessity of changes. The same words may be interpreted in understood in a variety of different ways. Consensus and common understanding is gained only when words are transformed into indicators which offer a comprehensive picture of what the company concept and strategies are.
Many company owners and CEOs have included one the same component to their strategies – business growth. They never attempt it to increase of revenue you through expenses cut, decrease or liquidation of unprofitable business units. Of course, expenses decrease and efficiency growth were the most important part of their strategic plan, but still only a PART. They were a tool to implement short-term goals. But their key task was to increase revenue you through long-term growth strategy. There is no wonder that these companies have chosen Balanced Scorecard as a strategy implementation tool. Those organizations which defined expenses decreased and efficiency growth as a key strategy component will not find anything useful in balance scorecard. Financial indicators have proven to be the best tool to decrease expenses and improve efficiency. Financial indicators are an excellent feedback tool. But financial indicators by themselves cannot show the way for revenue growth.
Even an inexperienced manager may make business plan in Excel. If existing preconditions for growth do not meet demands of corporate goals managers may easily increase growth coefficients. In the end the company will get figures that satisfy everybody. Analytical part of the plan is rather easy. But what is really difficult is the part of the planned that should identify ways to implement strategic goals. What new and old customers should be attracted and retained? What is the sales volume for every new customer? What new regions, technologies and products/services should be developed to implement company strategy? Balanced Scorecard System gives a detailed description of key elements for growth strategies:
Target customers that will initiate revenue growth
Offers that will encourage customers to do more business with the company
Innovation projects/products/services/processes
Investments in human resources and systems to improve processes efficiency and create differentiated value offers.
Without such a comprehensive plan it is impossible to concentrate company efforts on implementation of the new strategy for growth and efficiency. It is impossible to formulate and control the strategy for operational excellence with financial indicators. Strategy implementation depends not only on low expenses and prices, but also on high quality, timely delivery, satisfaction of customers needs etc. Differentiation strategies aimed at gaining of competitive advantage require a great variety of indicators in addition to financial KPIs.
CEOs and teams of top managers realize that they are not able to implement strategy is by themselves, without personnel participation. Every employee must take an active part in strategy implementation. In order to make the strategy successful it is necessary to take it out of top managers’ offices to work places of ordinary employees. Balanced Scorecard System clearly formulated strategy, and it should become a part of everyday routine for every employee.
Creation of managerial teams
Much depends on flexibility and responsiveness of managerial team. Most of such teams and working groups consist of specialists belonging to different business areas. Strange as it may seem but such narrowly focused specialist do not know much about what other team members are doing. Strategy oriented organization faces the task of transforming the group of narrowly focused specialists into a functional team which can solve general problems.
Some functions of may seem less detached as compared to others. We refer marketing and human resource service here. However, these departments often have a decisive significance for business and its strategy. As Balanced Scorecard is being implemented key members find out that they have poor knowledge of market segments, customers or personnel. In order to breach this gap in knowledge team leaders invite competent professionals to the team who can tell much about themselves and their contribution to implementation of a new strategy.
Many companies focus on financial and operational services. When they start implementation of Balanced Scorecard they discover that their companies a very closed and possess a great number of analysts. Such companies have never looked outside in order to see and understand their customers.
There was no agreement among managers on the image of a typical customer. In order to re-orient company marketing service was given due attention. Transformation of a corporate culture has become possible due to the fact that customer has become an object of regard for top managers. Common views on customer image and customer demands has made it possible to turn uncoordinated group of top managers into a team of like-minded company officials. Balanced Scorecard System offered methodology to develop new vision and strategy. Issues related to marketing, production finance and delivery services have become common issues for the team.
Formation of an effective team of leaders has broken longstanding traditions in some companies. CEOs sometimes abolished monthly board meetings and substituted them with roundtable discussions focused on strategy related issues. The entire team discusses a common strategy in the company, but not only how much they have earned all lost. Instead of talking about unnecessary details they are talking about what is going on in their company.
For example, AT&T Canada CEO appointed 4 women to the higher positions in the company while such positions had been always occupied by men. He said that the prejudice of appointing certain people for certain jobs was another bay area to be broken. In other words, company is interested in results but not in sex or social backgrounds of employees.
Managerial style
Perhaps, managerial style is one of the most important key success factors in Balanced Scorecard implementation. Communication is the most important task, according to most of top managers. It is obvious that strategy cannot be fully implemented unless of the entire personnel is directly involved in this process. Team leaders do not know about all the steps which need to be taken to successfully implement strategy. Indeed, the understand company strategy perfectly well, but they fully depends on their personnel and ordinary employees who know or should know how to achieve positive results.
World business history knows some very interesting examples. Some of the most well known top managers were marine officer in past. There is a myth that former officers who have later become managers follow authoritative managerial style. Everyone I think such managers want to control everything, every minor detail, every employee, every process. But the best officers, especially marine officers, know that during a sea fight generals a far away from combat ships. Plans never coincide with reality during a sea fight. Soldiers at firing line many killed, ships can be wracked and enemy may come from the most unexpected direction. The outcome of such fight depends on soldiers’ the ability to reorganize and adapt to changeable conditions. “Nonmaterial assets” (clear understanding of goals and tasks) are extremely important in a fight.
Senior officers educate and instruct soldiers and sergeants, so that everybody can take command at any moment. Balance scorecard was successfully implemented in those companies that manage to use effort and energy of ordinary employees in full. So, there is no wonder in the fact that companies run by former marine officers became very successful.
Balanced Scorecard and strategic management system based on BSC works better if it is used not as controlling but communication system. This may sound weird to those who view Balanced Scorecard system as a control tool. Most top managers agree that strategic conformity in the organization is extremely important.
For instance, how can you bring way of thinking of 5000 employees to strategic conformity? How will we coordinate work of different departments? Balanced Scorecard System has become the key communication tool for the processes of reporting, planning and budgeting. It has changed so many companies. From bureaucratic, autocratic and authoritative organizations they turned into solid companies in which ordinary employees and top managers have the opportunity to talk and work without any restrictions.
So, if talking about initial stage of Balanced Scorecard implementation we need to talk about choosing an organization level which already has strategy and needs to be integrated to the general strategy of the company. Secondly, keep in mind that head of this department should have in particular managerial style described above. Communication, cooperation, encouragement of initiatives and innovation are to be part of the manager’s Bible. Avoid managers who use strict control systems and who expect employees to obey their orders only. If the first and the second recommendations conflict somehow, make a choice in favor on the second one. Of the right managerial style is more important than the right strategy. If according to this rule, Balanced Scorecard should be developed on the level of auxiliary business unit but not on a level of a huge department, than this is a right decision. All in all, Balanced Scorecard can be modified and amended according to the new conditions, while it is almost impossible to make as stubborn manager change of his style.
Summary
Balanced Scorecard is the most effective in cases when it is a part of large scale changes and the company. Very often the necessity to change is obvious. It may happen that competitive environment has changed or company results leave much to be desired. Ambitious plans will help motivate requirements to change. Balanced Scorecard will help managers take strategy and company mission to the lowest company levels, to ordinary employees and front line managers.
Development of Balanced Scorecard can be started a different organization levels. Ideally, a common strategy must be formulated. BSC offers mechanism that transfers strategies into goals and indicators created based on cause and effect ties in business processes. At the same time, Balanced Scorecard can be developed in auxiliary departments such as IT or HR. The right managerial style is a very important factor. It is imperative to encourage personnel to express their opinions and viewpoints on company strategy, problems, innovative projects etc. Finally, Balanced Scorecard should be viewed as an interactive system which encourage is dialog, discussions and sharing of viewpoints.
