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0r.Fobert S. Kaplan Is the 8aker FoundatIon Professor at the Harvard 8usIness School. HIs research, teachIng, and consultIng focus on lInkIng cost and performance management systems to strategy ImplementatIon and operatIonal excellence. His books with 0avId Norton include Strcte$?y Mcps, named as one of the top ten busIness books of 2004 by Strc
0r.Fobert S. Kaplan Is the 8aker FoundatIon Professor at the Harvard 8usIness School. HIs research, teachIng, and consultIng focus on lInkIng cost and performance management systems to strategy ImplementatIon and operatIonal excellence. His books with 0avId Norton include Strcte$?y Mcps, named as one of the top ten busIness books of 2004 by Strc
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0r.Fobert S. Kaplan Is the 8aker FoundatIon Professor at the Harvard 8usIness School. HIs research, teachIng, and consultIng focus on lInkIng cost and performance management systems to strategy ImplementatIon and operatIonal excellence. His books with 0avId Norton include Strcte$?y Mcps, named as one of the top ten busIness books of 2004 by Strc
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Dr.Robert Kaplans Balanced Scorecard Interaction with senior
managers of GMR Group
Introduction of Dr.Robert S Kaplan and his works 8.7anchI, 0Irector CEL Introduced 0r.Fobert S. Kaplan to the senIor managers of C|F Croup for the InteractIve sessIon on ImplementatIon Issues of 8alanced Score Card (8SC). 0r.Kaplan Is the 8aker FoundatIon Professor at the Harvard 8usIness School. He receIved a 8.S. and |.S. In ElectrIcal EngIneerIng from |..T., and a Ph.0. In DperatIons Fesearch from Cornell UnIversIty. 0r.Kaplan's research, teachIng, and consultIng focus on lInkIng cost and performance management systems to strategy ImplementatIon and operatIonal excellence. He has been a codeveloper of both actIvItybased costIng and 8SC and has authored or coauthored 12 books, 15 H8R artIcles, and more than 120 other papers. HIs fourth book coauthored wIth 0avId Norton, Alnment, wIll be publIshed In February 2006. HIs prevIous books wIth Norton Include Strctey Mcps, named as one of the top ten busIness books of 2004 by Strctey cnd 8sness and amazon.com. The StrcteyFocsed Drcnzcton, named by Cap CemInI Ernst E Young as the best InternatIonal busIness book for year 2000. The 8clcnced Scoreccrd: Trcnslctn Strctey nto Acton has been translated Into 22 languages and won the 2001 WIldman |edal from the AmerIcan AccountIng AssocIatIon for Its Impact on practIce. 0r.Kaplan consults on the desIgn of performance and cost management systems wIth many leadIng companIes. He regularly offers semInars In North and South AmerIca, Europe, |Iddle East, South AfrIca, AsIa, and the AsIaPacIfIc regIon. About GMR 8.7anchI also Introduced the C|F Croup, whIch Is In the busIness of developIng and InvestIng In Infrastructure projects and later maIntaInIng them, whIch Involve consIderable complexItIes. 8SC Is a one year old InItIatIve at C|F Croup and the Croup Is In the process of learnIng. t Is a unIque opportunIty for our senIor managers to Interact wIth 0r.Kaplan. And on behalf C|F Croup extend you a warm welcome. Dr.Kaplans introduction to BSC 0r. Kaplan thanked 8.7anchI for the warm welcome and apprecIated ndIa's dynamIsm In IntegratIng wIth the global economy. He was Impressed wIth the spectacular growth of T sector enablIng the flow InformatIon electronIcally seamlessly. UnlIke the T sector, It Is equally Important to move physIcal thIngs people, cost, goods and servIces etc., In the manufacturIng and Infrastructure busInesses and ndIa has unIquely posItIoned Itself to joIn the global busIness communIty. The challenge Is to Improve the tangIble Infrastructure lIke roads, hIghways, aIrports, power etc., to reduce poverty In rural ndIa as enterprIses can locate theIr busInesses, enablIng the mobIlIty of the vast populatIon In ndIa.
f 8SC plays a lIttle role In transformIng the companIes In executIng theIr busIness strategy then feel have faIrly accomplIshed some thIng very Important In my lIfe. The evolutIon of 8SC Is 15 years old whIch was developed wIth 0avId Norton. ts roots are In management consultIng whose purpose Is to Improve performance measurement systems In organIzatIons. Even at that tIme, was certaIn that the fInancIal system Is not the only one to measure performance as organIzatIons are competIng on customer relatIons, InnovatIons, qualIty, people, capItal and InformatIon systems. Dne needs to measure the drIvers of the fInancIal system, such as:
1. How well are we doIng wIth our customers: |easurIng outcomes such as: Are they satIsfIed: What else do we need to do: 2. |easurIng people performance to see whether they have understood what they have to do In 2 order to delIver value for customers. J. WhIch are those processes that the employees and organIzatIons need to focus on, whIch delIver value proposItIons to the customers: 4. After focusIng on those processes how does an organIzatIon go about developIng the skIlls, competencIes and culture to excel In those processes:
n these fIfteen years companIes around the world are not only usIng 8SC to execute strategy but also to address lager Issues such as competItIve factors and opportunItIes. t's stIll a robust framework. The leaders at the top formulate the strategy and employees down the lIne mIddle management and employees at front and back offIces Implement the strategy. 8SC provIdes a clear pIcture as to what employees need to do In executIng the strategy. n the absence of 8SC, employees apprecIate the well crafted strategy but don't know what they need to do and what they need to do dIfferently. nItIatIng varIous managerIal InItIatIves such as T0|, SD certIfIcatIon, SIx SIgma makes the local processes effIcIent, but these InItIatIves themselves don't lInk to the strategy executIon.
8SC enables companIes to alIgn theIr actIons, people performance, Internal processes and resource allocatIon and then be accountable to the strategy. n ndIa - C|F Croup, Tata Sons and FelIance have well dIversIfIed busInesses wIth lIttle synergIes between them. TradItIonally, dIversIfIed busIness groups look at each of theIr busIness from the fInancIal perspectIve. Whereas 8SC enables busIness groups to look at theIr portfolIo of busInesses and enable each busIness develop and Implement long term strategIes and also provIdes a powerful governIng mechanIsm for the corporate H0.
Each busIness In a dIversIfIed busIness group can be compared to a rower In a rowIng competItIon who has a specIfIc task to do. All the busInesses - In the dIversIfIed busIness group lIke all the rowers have to work In a synchronous manner to move ahead and to wIn the race. The Corporate H0 whIch manages the dIversIfIed busIness group Is compared to the CoxswaIn or the skIpper who steers and coordInates the power and rhythm of each of the rower whIch Is lIkened to each busIness. n addItIon, 8SC:
Adds value by havIng a governIng process, brIngIng the element of long term strategy for each of Its busIness by sharIng knowledge, customers, people, and skIlls across busInesses.
Enables shared servIces such as fInancIal, HF and T servIces across busInesses that add value to the Croup In realIzIng the strategy, wIth hIgher qualIty, more professIonalIsm, Instead of beIng outsourced. No doubt basIc transactIon servIces have to be outsourced. Shared servIces are about buIldIng relatIonshIps and partnershIps and alIgnIng them wIth busIness unIts. t Is an opportunIty to add some unIque value proposItIon wIthIn the busIness group.
0r.Kaplan mentIoned that the 8SC lends Itself for ImplementatIon In many InnovatIve ways. Q & A session with GMR Groups senior managers What has been your experience in large companies in balancing the long and short term strategic objectives which the BSC requires? In reality, most organization spend most of their time focusing on operational and short-term objectives, paying little attention to long term strategic objectives. ThIs Is one of the challenges faced by many organIzatIons. 8y just mappIng the current strategy to 8SC, organIzatIons are not changIng the way of doIng theIr busIness. Dur book -Strategy Focused DrganIzatIon talks of fIve prIncIples to achIeve breakthrough performance:
1. TranslatIng the strategy to operatIonal terms 2. AlIgnIng the organIzatIon to create synergIes J. |akIng strategy everyone's job 4. |akIng strategy a contInual process 5. |obIlIzIng change through executIve leadershIp
J |ost organIzatIons aren't able to sustaIn the fourth prIncIple. Dne reason could be theIr management processes such as budgetIng process, personal goal settIng, rewards, reportIng system, skIlls development and the management meetIngs focus on operatIonal Issues: whIch fIre has erupted; how do we put It out; and how can we solve thIs and that problem. The resource allocatIon whIch Is part of the budgetIng process focuses on contInuous Improvement InItIatIves and short term goals. These processes are all dIsconnected and are not alIgned wIth the strategy and therefore the organIzatIons lose focus on the long term strategy. For excellent and Industry leadIng performance one needs to follow the fIve prIncIples of Strategy Focused DrganIzatIons. Creat companIes succeed because they are able to focus on long term strategy and stIll deal wIth theIr daytoday operatIonal Issues.
Take the example of Chrysler Croup whIch was goIng downhIll In the year 2001, wIth forecasted S5 bIllIon dollar operatIng losses. The Cerman parent 0aImler had just purchased Chrysler and fIred the AmerIcan CED and the executIve team and sent the Cerman engIneer 0Ieter Zetsche to take over the company for turnIng It around. US Employees were fearful after losIng the AmerIcan CED and executIve team. 0Ieter Zetsche was a wonderful person and had a good understandIng of people and theIr concerns. For turnIng around the company, he knew that It Is not just about cuttIng costs and employee layoffs; It Is about ImprovIng qualIty of cars and Investment In new great products.
The new CED talked wIth Head of plannIng and wanted to turnaround the company through the 8SC by focusIng on the bIg goals for the next three years. 8SC fIrst enabled In creatIng the score card, and then alIgned down to the busIness unIts and plants. Everybody understood what they needed to do together. The employees saw a whole new world and wondered! Can the company help them In communIcatIng the 8SC down the organIzatIon level:
The 8SC project team led the communIcatIon program and sent a 8SC brochure to each employee sIgned by the CED. Zetsche walked the talk. n one of the 8SC meetIngs led by the Head of PlannIng, he asked what the team thought about those two or three key Issues that could be dIscussed In the management meetIng that he had scheduled In the next few days. The agenda of the management meetIng focused on one or two bIg Issues and the strategIes that needed management attentIon and deployIng key decIsIons through 8SC. ThIs meetIng was not about the monthly varIance reports, or about project mIlestones whIch everybody presented and quIte a few nodded theIr head durIng the presentatIon. The management meetIng was about bIg enterprIse level InItIatIves and not short term operatIonal Issues. The broad InItIatIves were drIlled down to varIous departments, along wIth the needed resources for theIr ImplementatIon. The 8SC project team started managIng the InItIal management. We have seen thIs occurrIng Independently In several successful organIzatIons.
We have functIonal groups In organIzatIons managIng fInance, HF, T, marketIng, legal etc. All these functIons are managed. What Is that one thIng, no group or offIce to manage: - t's The Strategy. The job of the strategIc management group gets over In the mIddle of the year when they partIcIpate In strategy management plannIng meetIng and brIngs out a nIce lookIng strategIc document and now everybody gets the strategy. Fest of the year, the strategIc management group plan for the next year's meetIng. No one Is Involved In ensurIng the strategy plan gets executed. t the lIne manager's responsIbIlIty to get the strategy executed but s/he Is busy In the operatIons strategy.
The larger progressIon of the 8SC depends on establIshIng the DffIce of Strategy |anagement (DS|). DS| ensures that all the people who are In charge of organIzatIonal processes are focused on strategy by updatIng theIr strategy map In 8SC - every quarter; after the perIodIc departmental, functIonal and management meetIngs; annually; and also when employees leave for the day.
When busIness groups, departments, and shared servIces do theIr strategy, It Is Integrated at the organIzatIonal level. DS| manages the process of cascadIng the strategy down. And when the budget Is done, DS| coordInates wIth the fInance functIon to make sure that the resources are avaIlable for the enterprIse level and for crossfunctIonal and cross busIness InItIatIves. FInally, sustenance of the 8SC InItIatIve needs to be supported through organIzatIon-wIde communIcatIon programs.
4 WIth DS|, there Is somebody remIndIng us that we need to be focused on strategy. The CED Is responsIble for ImplementIng strategy, whIch means that the CED ensures the lIne mangers execute the strategy. The mIlItary metaphor Is apt here, where the Ceneral Is In charge of wInnIng the battle. Colonel does the strategy and the chIefs of staff execute. There Is a colonel who travels wIth the Ceneral - who makes sure who shows up to the meetIngs, whether the rIght people have shown up, and plan the agenda. When the meetIng Is over, the colonel takes notes and decIdes the actIon plans. The best approach Is to be focused on long term strategy by accommodatIng the short term strategIes. EstablIshIng DS| enables organIzatIons to transItIon from the InItIal 8SC project Into an ongoIng regular process whIch fInally becomes a part of organIzatIonal structure for makIng the strategy sustaInable.
Should the OSM be part of the CEOs office or part of the Planning Department? There could be dIfferent structures: 1. t could dIrectly report to the CED 2. Dr be part of the PlannIng department, or the fInance functIon 8ut, always one level below the CED where management revIews Is done. f It Is anythIng below thIs level, the 8SC would not have enough clout when It goes to busIness unIt heads. t Is a dIrect lIne to CED or one level away wIth a strong head of plannIng who has a dIrect access to CED. deally DS| should be wIth plannIng functIon, sInce one cannot separate plannIng of strategy wIth executIon. 8SC often does not stop wIth plannIng functIon; It stops wIth resources, qualIty or the respectIve functIons. Strategy Is revIewed holIstIcally and DS| enables adoptIng and updatIng strategy In a dynamIc manner. Strategy Is not. "About plannIng strategy once a year and executIng It In eleven months." n CanadIan 8lood ServIces, the 8SC team was made to report to the CED, whIch sent the message across the organIzatIon that strategy Is a serIous busIness.
To make the strategy ImplementatIon more robust, each busIness could also have a strategy executIon offIcer lIke HF or fInancIal DffIcer who makes sure the data for 8SC Is comIng In, there Is software system and other thIngs to make 8SC run smoothly.
Can you share any experIence or approach, where SC has the bottom-up or partIcIpatory cuIture: deally and theoretIcally strategy Is topdown. Take my earlIer example of CoxswaIn or the skIpper who strategIcally steers the rowers In rowIng. f It's bottomup strategy, It Is lIke each of the eIght rowers decIdIng Independently whIch way we are goIng to row and at what to speed and each havIng theIr own great Ideas. Looked collectIvely, Its chaos. Topdown approach brIngs In the unIfyIng vIsIon and the busIness unIts can decIde the flexIbIlIty and varIatIons wIthIn thIs unIfyIng vIsIon. Some tImes, the 8SC may be done at the busIness unIt level fIrst, and then taken to the top for ratIonalIzIng before brIngIng It down. ThIs Is not bottomup strategy but to stay focused wIth In the unIfyIng vIsIon and then adopt locally.
There are two IncIdences from our work where 8SC was done bottomup 8ank of Tokyo and |ItsubIshI In North and South AmerIcan dIvIsIons. The 8SC project was sold at the CED level In the AmerIcan dIvIsIons. The project team buIlt the strategy map along wIth the score card for each of theIr busIness. The Japanese CED saId, "ThIs Is not the way we do It, we need to go and talk to employees - they know the strategy." The project team mentIoned that the strategy Is derIved from the top. The CED agaIn mentIoned that, In Japanese companIes the strategIes come from the bottom up.
The corporate 8SC project team then, told thIrty of theIr busInesses whIch were scattered around US to develop strategy for theIr busIness and artIculate It thorough 8SC and strategy maps. TraInIng and other support were gIven to these busInesses. |onths later, there were J0 strategy maps and 8SC. The corporate 8SC project team found the strategy maps and 8SCs constructed dIfferently wIth no lInkage and synergIes between them as they were done locally. There was no common structure and key corporate level processes. Dne key process that was mIssIng was the rIsk management whIch happens to be a prIorIty for the Corporate H0.
The corporate 8SC project team took thIs exercIse as learnIng and buIlt a common template whIch captured 80 90 of what the local busInesses had. The template had common termInology - fInancIals, 5 revenue growth, rIsk management, productIvIty, qualIty of products, key measures In relatIonshIps and customer relatIons, learnIng and growth. The corporate 8SC project team communIcated the common template to thIrty busInesses, askIng each of them to rebuIld the 8SC wIthIn thIs structure. They also asked them to label each of theIr objectIves and measures In three colors. WhIte measure IndIcated what was unIque to them. Crey measure what has to be shared wIth other busIness and black was a common measure across the organIzatIon. n addItIon the common template contaIned:
1. Shared measures between three or four groups that has to be worked on lIke supply chaIn 2. And, those objectIves and measures whIch had corporate mandate where all busInesses have to do: rIsk management; productIvIty and employee development.
Now J0 busInesses have a common structure wIth clear lInkages and synergIes. The Japanese CED of the AmerIcan busInesses was happy, but the process took 1215 months. t was done the Japanese way. ThIs bottomup approach went to the top for synthesIzIng and ratIonalIzIng and the corporate gave some guIdelInes, before It got percolated down. Although the process took longer, It brought In buyIn across the organIzatIon.
In servIce busInesses compared to product busInesses the strategy Is IocaI - that Is at the poInt of purchase or at the poInt of transactIon. How can SC artIcuIate the IocaI strategy! Strategy Is not local but the experIences are certaInly local. We are not tellIng people what to do whIch Is typIcal of old scIentIfIc management movement. We have to leave It to frontlIne employees to fIgure out what to do.
n order to create that experIence, you can't tell them all the contIngencIes but compete on great experIences. Let me corroborate thIs wIth my recent experIences. |y AIr Sahara connectIng flIght from |umbaI was cancelled. |y travel agent learnt about thIs one and half days earlIer and sent me an e maIl whIle was In South AfrIca mentIonIng that AIr Sahara flIght scheduled at 1.J0 p.m. Is cancelled and have to take Jet AIrways flIght whIch Is at 2.00 p.m. And that have to get the tIcket reIssued from Jet AIrways. antIcIpated that there mIght be some problem and came Into the aIrport lIttle earlIer. And went to the Jet AIrways counter and presented the AIr Sahara tIcket and requested them rebook me. The person at the counter saId, " can't do thIs, you have to go to our offIce." walked out the securIty and went the Jet AIrways counter stood In the lIne for 15 mInutes, when my turn came, explaIned the problem to them and they saId, "We can't do anythIng, sInce It was not our tIcket." They dIrected to me to the AIr Sahara offIce. stood In the AIr Sahara queue and when my turn came, explaIned the sItuatIon and agaIn the person saId, " can't do anythIng and you have to contact our person who Is InsIde." At thIs poInt asked them. "0Id do anythIng wrong, thIs Is your tIcket." To cut short the story, everybody was doIng theIr job. They dId exactly what they were told to do. They were not solvIng the customer problem and thInkIng about the Issues through the eyes of the customer. The frontlIne employees were not solvIng the problem of the customer and that Is not competIng on strategy. ThIs Is what exactly needs to be communIcated to the frontlIne.
Not all strategIes are made that way. f one goes to Wal|art and ask the salesperson for somethIng and that Is not avaIlable on the shelf - s/he mIght say, "f you are lookIng for somethIng and that Is not there on the shelf, then we don't have It." They are not In the busIness of creatIng a great buyIng experIence. They are In the busIness creatIng a lowcost buyIng experIence. They do a great job gettIng most what we need, and If am lookIng for somethIng whIch they don't have, they are not goIng to do anythIng about It. HelpIng and guIdIng the customers would dIsrupt theIr cost structure.
We saw two dIfferent ways of creatIng a great buyIng experIence: the company has to decIde the approprIate strategy or value proposItIon. We need to tell our employees what we are tryIng to accomplIsh and empower them, so that they know how they can create great customer experIences. n manufacturIng companIes, you buffer customers from your employees wIth InventorIes. The customer does not have to talk the person who buIlt the product. 8ut, In servIce organIzatIon, the customer speaks to the frontlIne persons who create the experIences. And, If there Is defect at thIs customer poInt of contact, there Is no buffer here, as In manufacturIng companIes. 6 Let me gIve another experIence. When checked Into the Hotel Leela In |umbaI at 2.00 a.m. In the mornIng whIch had booked earlIer, found that there was clear water damage on the wall, and the room smelt of molt. decIded not to sleep here and asked the front desk to gIve me another room. The person saId. " gave you a room." told the person that the room Is not good. The person agaIn retorted, "ThIs Is the room you had booked wIth kIng sIzed bed." t was hard to get the front desk person to understand my dIscomfort In the room. Customer had a problem here, the front desk people thought they have done theIr job by gIvIng the room what the customer had asked. The front desk person has not been traIned to solve the customer problem. ThIs Is where the 8SC Is so Important to the servIces organIzatIon for creatIng great local experIences.
Can you share some experIences of Infrastructure companIes, where SC has been ImpIemented successfuIIy! |any of the utIlIty companIes lIke energy companIes are very much usIng 8SC, because of the customer focus. EarlIer these companIes were monopolIes and the customer had no other place to go, and when the generators were perIodIcally shut down for maIntenance, customers dId not electrIcIty at these tImes. WIth the deregulatIon of energy and telecommunIcatIon sectors, they have become competItIve. n the competItIve envIronment, one has to create value proposItIons for customers to buy from you.
A utIlIty company needs to focus on the value proposItIon. Whether It Is a lowcost, relIable or good qualIty utIlIty provIder or, Is It on customer relatIonshIps where the utIlIty company says, "We are goIng to work wIth you and show how our energy can create value and as you grow, we wIll Increase the supply and customIze our offerIngs." t needs to decIde theIr strategy and the value proposItIon - so that they can contInue to wIn the busIness In competItIve markets.
Take the case of an underwater constructIon company In US. t wIns busIness based on low prIce. To be a qualIfIed bIdder, It has to demonstrate qualIty and capabIlIty In order to wIn the complex constructIon projects. As It went through a |erger and AcquIsItIon It wanted to create a new unIfyIng culture through 8SC. WhIle buIldIng the 8SC, the company came to the customer perspectIve - It dId not have many customers. t had only two dozen companIes whIch fInd oIl and gas underneath the water. t talked to these customers to fInd out what makes them choose a partIcular contractor In constructIon and InstallatIon projects. 6070 of the customers they went to, mentIoned they need to be qualIfIed, have competence, safety, envIronmentally good and all the people who pass these tests get to qualIfy to bId and we open the envelop and the low prIced bId gets the contract. These are the tIer customers.
8ut, few companIes lIke 8rItIsh Petroleum and Shell mentIoned. "t's InterestIng that you are askIng these questIons whIch are part of our own strategy. We are thInkIng of havIng fewer supplIers, who can establIsh long term relatIonshIps and who are able to understand our needs and suggest solutIons taIlored to our needs." f a company understands Its customers well and create proactIve solutIons to theIr needs, companIes lIke 8P and Shell would not even thInk of goIng to the competItors. 8P and Shell are tIer customers who would gIve busIness based on value for money. They would accept a hIgher prIce, If they felt that they got more value. For Instance, If the contractor fInIshes the project sIx months earlIer, It Is almost gIvIng sIx months worth of revenue.
The underwater constructIon company decIded It can't be best In both the tIer and customers. t decIded to work wIth 8Ps and Shells. n customer perspectIve, It measured the percentage of busIness It won through customer relatIonshIps and not just by prIce. ThIs was a clear to message to everybody that, If you have to measure customer relatIonshIps over tIme to wIn the busIness: It's not by low prIced bIddIng; but by understandIng customer's need well enough, so that the bId the company submIts meets the customer's needs better than anyone else.
ThIs meant new Internal processes - that Is to measure the tIme spent wIth customers to understand theIr needs and busInesses, whIch was never done before. EarlIer they waIted tIll the busIness bIds came to them. They analyzed the bId document and fInally dId the bId. Now, they saId that's too late. We have to start establIshIng relatIonshIp to be able to Influence the tender or bIddIng that comes out. 7 f you understand and exploIt the customer relatIonshIp, the tender that wIll come out, wIll be more related to your capabIlIty whIch may help you to wIn the busIness. Dne can't get Into new busIness by takIng the exIstIng processes such as T0| and SIx SIgma and develop relatIonshIp wIth the customers. The wInnIng of busInesses through buIldIng customer relatIonshIps was revealed through 8SC process whIch became part of the strategy for thIs company.
How do you ensure that the goaIs go to the rIght quadrant of SC! 0on't get hung up on the geography. 8SC Is a framework. t's a less Important problem to worry about. There Is always some Issue, whether somethIng Is Internal processes or customer or between learnIng and growth and T. 8SC Is a template and not a straIghtjacket. t helps you to organIze one's thInkIng about strategy.
Is It the job of DSh to revIew the executIon of strategy or executIves can themseIves revIew the strategy every quarter!
Strategy Is about executIon. n the monthly meetIng one revIews the ImplementatIon of operatIonal Issues - and they are not strategIc. 8SC revIews whether strategy Is makIng any sense and Is It really workIng and It deals wIth larger Issues such as upgradIng people skIlls, ImprovIng Internal processes, creatIng better experIences for customers that wIll gIve us more busIness and Improve our margIns. t Is about causal change of thInkIng s there anythIng that makes the theory our strategy InvalId: For Instance, If everythIng Is green at the bottom of the 8SC: people are doIng well; processes are beIng Improved; and yet customers don't seem to buyIng more. Now we have two answers: Dne Is the delay and another Is the theory that what wIll cause the customers to buy from us Is InvalId.
The revIew of strategy can be done annually In constructIon busIness as It Is not a fast movIng busIness. The perIodIcIty of strategIc revIew Is based on the busIness need. 8ut one should remember that the strategy Is not constant for fIve years. You dId your strategIc plan when the prIce of oIl was S40 a barrel and In the mId year It Is year S72 a barrel. Such developments may or may not have an Impact on your strategy. PerIod revIews allow the organIzatIon to deal wIth those Issues that were not antIcIpated at the tIme of formulatIng the strategy. t also provIdes the flexIbIlIty to ask, Is there anythIng In growth, expansIon plans or alIke that we should reconsIder, In lIght of the fact that we formulated the strategy nIne months ago:
How Is the strategy ImpIementatIon of SC dIfferent from hanagement y DbjectIves (hD)! t's sImIlar. |8D ImplementatIon Is not guIded by overarchIng strategIc objectIve of the organIzatIon It Is rather more local. Everybody goes through objectIves and local tasks and measures wIthout a unIfyIng strategIc vIsIon of the organIzatIon. 8SC retaIns |8D prIncIples and embeds It In a strategIc framework. EarlIer talked of fIve prIncIples of Strategy Focused DrganIzatIon, where the thIrd prIncIple talks of motIvatIng employees to contrIbute to the strategy. The fIrst part Is about communIcatIon and awareness; all employees have to know what strategy Is. The second part alIgns theIr personal objectIves; that Is lInkIng theIr |8D to the strategy. Dnce they understand strategy of the sector and the busIness and the department better, they mIght choose measures that would be more alIgned wIth the executIon of strategy, rather than just some objectIves that Improve theIr local process. The |8D process Is retaIned In 8SC and It Is gIven guIdance and lIfe to enable the executIon of strategy.
Along wIth the |8D, one may also wonder T0| and SIx SIgma are related to strategy. They are powerful executIon and Improvement tools. Someone saId that |8D, T0| and SIx SIgma teach people how to fIsh but, 8SC teaches you where to fIsh. 8SC Is about war tactIcs - how to wIn battles. Strategy Is about whIch battles should be fought, and where we want to take on the enemy.
When Peter F 0rucker wrote about |8D about 50 years ago, he was correct In sayIng the objectIves should reflect the strategy of the busIness and they have to be nonfInancIal and meanIngful to the IndIvIdual. 8ut, what we have seen In the ImplementatIon of |8D In organIzatIons Is that the people are not choosIng objectIves that relate to the strategIes of the busIness. They relate to fIshIng better 8 where they happen to be fIshIng, but not thInkIng that they may try somewhere else to fIsh.
The envIronment changes rapIdIy and so Is technoIogy upgradatIon. How do we aIIgn the SC strategy ImpIementatIon to these changes! t's true. That's why we have quarterly revIews In 8SC, for adaptIng to the changes. t may look lIke 8SC Is an extensIve lengthy process gettIng the Idea and thInkIng the 8SC way. 8ut, once you go through thIs process It's pretty sImple. Let's turns around thIs questIon In a dIfferent way and stIpulate that some of our busInesses are changIng and are In dynamIc tImes, where the strategy needs to change.
The challenge Is how to get all the key managers and employees to know what the new strategy Is. SInce they are workIng wIth the old strategy, a good communIcatIon strategy enables all the employees together to move wIth the new and changIng strategy.
The easIest and fastest way to do thIs Is to modIfy the strategy map In the 8SC. That's what the employees are lookIng at - these were the thIngs we are doIng In runnIng the busIness and these are the key thIngs we should look at, If we are goIng to change the strategy. f one goes back and spends a few hours or half a day to decIde what on the score cards should change, In vIew of the change In the envIronment, then you can quIckly communIcate that to everybody. When the employees get the message, It becomes easIer to move the organIzatIon towards the newer strategy. So, communIcatIon strategy Is the key.
Dne has to dIstInguIsh between strategIes, InItIatIves and tactIcs. Some InItIatIves that you are doIng may have to be stopped. 8ut you are stIll tryIng for the same strategy - the CF| strategy, the growth strategy In certaIn sectors. f you do the strategy at hIgh level In seemIng rapId changIng envIronment, strategy doesn't change quIte that much. The tactIcs and InItIatIves change, but the ultImate way an organIzatIon measures Its performance and success through people, processes, customer relatIons does not change that much. When we talk of change In strategy, there Is shIftIng customer base that we are goIng after. The change In strategy Is to sell the commercIals to the government; that Is a change In strategy. Covernment Is a dIfferent customer, whIch we don't that frequently.
When the strategy changes due to technoIogIcaI obsoIescence or poIItIcaI envIronment, how do we famIIIarIze the empIoyees wIth the new strategy across the organIzatIon! Strategy doesn't change that frequently. ThIngs may change lIke shuttIng off InItIatIves, redoIng a project wIth change In tactIcs, and that Is not change In strategy. To my mInd strategy has to do wIth targetIng customer base, whom are we goIng after and then thInkIng about the value proposItIon we are offerIng to the IdentIfIed customer base.
Let's go back to the example of Wal|art; people buy clothes, whIch Is a good buy. The clothes get Imported from SrI Lanka, ndIa and ChIna. |y wIfe who Is accompanyIng me here has never bought a pIece of cloth In Wal|art. She Is not the targeted customer of Wal|art. She buys clothes, whose names end In wallet lIke ArmanI, CuccI etc. FashIons of ArmanI and CuccI change every year. So, the detaIls of how these companIes Implement strategy also changes. The basIc strategy of ArmanI and CuccI Is hIghend fashIon, and that has not changed for them for decades. ArmanI and CuccI are not competIng wIth Wal|art, and they are also not competIng wIth departmental stores whIch are In between Wal|art and CuccI and ArmanI.
Strategy Is, askIng where do we fIt In the value chaIn. s It the Wal|art whIch Is of lowcost: Dr, Is It the hIgh end fashIon lIke ArmanI and CuccI, or Toyota v/s |ercedes: The tactIcs for ImplementIng the strategy Is dynamIc. n the customer perspectIve of 8SC one measures market share In those targeted groups and also the customer satIsfactIon levels.
Let's take the case of the underwater constructIon company, whIch talked about earlIer. f thIs company went to the customers who are lookIng for low prIce and asked, how do you lIke us: They would be very dIsappoInted and say, "You used to be a good bIdder, now your prIces are much hIgher." 9 That's because these companIes are not theIr targeted customers. TheIr targeted customers are 8Ps, Shells and Chevrons who are wIllIng to pay to hIgher prIce to get the hIgher value they get from the constructIon projects. ThIs strategy Is goIng to stay In the next 5 or 10 years. The strategy Is about tactIcs: Are we goIng to slow down our spendIng and not goIng to spend as quIckly as possIble: How quIckly do we need to expand the plant or the market:
How do you IInk the performance of senIor managers, when the busIness Is In a premIum market or servIcIng a premIum segment! And can SC be used to evaIuate thIs kInd of performance! We can measure performance wIthIn that strategy. We can look at market share on those customers who are goIng to buy on that performance rather than buyIng on the prIce. Take ArmanI's example. There you are goIng to measure the share of wardrobe. What percentage of those targeted customers are purchasIng In our category: Let's say, It Is at J. Can we Increase It to 7: ThIs wIll be pretty good, as we are gettIng hIgher share.
CettIng Into the constructIon example, If 8P and Shell are my targeted tIer customers who buy on relatIonshIps, Can evaluate my managers In that busIness, by askIng what share of Shell's constructIon budget are we gettIng: FIght now, we are gettIng 4, can we get 15 or J0. We evaluate the managers relatIve to the measures on that strategy. Some of It could be fInancIals, or customers or processes. Dr even It could be developIng the people - what percentage of people can be good applIcatIon engIneers who can work wIth that customer and fInd theIr needs In ways that only we can fulfIll. That wIll be a learnIng and growth goal In that strategy. We have to Increase the number of people who are able to work wIth sophIstIcated customers and understand theIr busIness and translate that back as revenue to us.
The concessIon perIod In the Infrastructure deveIopment busIness Is a defInIte perIod where one's top IIne growth Is defInIte and the bottom IIne too Is more or Iess defInIte. Under such cIrcumstances, where do you thInk the SC wouId fIt In! 8SC wIll get you the next generatIon of revenue. What led you to get that revenue stream In the fIrst place: t was through competItIve bIddIng and then executIng the project as per the parameters mentIoned In the bId. f you don't delIver great customer experIence then the franchIsee may be taken away from you. When the questIoner mentIoned that there Is only one customer that Is the Covernment, 0r.Kaplan responded that the government Is responsIve to Its cItIzens. f you are operatIng a road and If there are some floods and you faIl to fIx the pot holes. Although you may have the franchIsee for fIve years, It may be taken away from you sooner, If you are not delIverIng a very good experIence to your customer's customers. Here the polItIcIans' customers are voters.
f there Is a problem wIth electrIcIty bIll or toll and the company Is not responsIve, then the cItIzens wIll complaIn to the government that you put thIs company whIch Is arrogant and nonresponsIve. And If thIs happens, the company may not get another contract. 8SC helps wIth long term drIvers of the busIness lIke - what do we have to do here as a demonstratIon to get the same kInd of deal In fIve other states or gettIng Into next generatIon of busIness by leveragIng thIs experIence what consultants call as referenceabIlIty. want to do a good job although have fIxed contract, but want the clIent to feel good about that experIence. t Involves more than sIttIng back and collectIng annuItIes. That means communIcatIng about processes and about traInIng employees In dealIng wIth cItIzens.
What Is your experIence at the board IeveI to get the management tIme for Iong term strategIc InItIatIves! When thIngs are goIng on fIne, top management wouId not IIke to Invest In repIIcatIng the best practIces from one busIness to another and aIso Invest deveIopmentaI actIvItIes whIch address the future busIness needs! The board needs to ask How are we sustaInIng and growIng the enterprIse: People may ask, we are doIng pretty well, we are DK and we are a great company. 8ut we are not lIke those great companIes Chrysler, |obIl and others. CettIng back to the fIrst prIncIple In Strategy Focused DrganIzatIon the executIve leadershIp plays an Important role In translatIng the strategy Into operatIonal terms and defInItIons. Creat leaders contInually challenge the organIzatIon. Even when we are doIng well, they want to do 10 even better. Dne of the great leaders of the 20 th century -Jack Welsh took over the CE In the 1980s whIch was a great company and turned It around as a terrIfIc company. We are not as good as we need to be. Welsh worked towards beIng the number 1 or number 2 In every Industry In whIch CE competed. He set stretch targets for all people and challenged them to perform better. JIm CollIns In hIs fIrst book "8uIlt to last" talks about 8Ig HaIry AudacIous Coals, where great leaders even In a very successful organIzatIon contInually challenge theIr employees to perform even better. There was a famous pItcher Satchel Page -who was a negro In AmerIcan baseball, who dId not get Into major leagues because of dIscrImInatIon. 8ut he was well known and Is memorable for one phrase "0on't look back. Somebody may be gaInIng on you. ThIs Is what organIzatIon needs to do. Even If the organIzatIon Is doIng well, and If you have the annuIty contract, there Is somebody who Is goIng to get you. That's what the leaders have to do. That's why you have to contInually get better by reInventIng yourself - that's where keepIng one's focus on a longer term strategy and the knowledge |anagement play a useful role.
How does the IeadershIp chaIIenge the organIzatIon In terms of the causatIve factors! For exampIe, In fInancIaI statement, one does the varIance anaIysIs to fInd out why one dIdn't reach those partIcuIar targets and try and fIII It out In the next quarter. ut, how does one get to the root cause at the strategIc IeveI of causaI thInkIng, and, not at the crItIcaI and operatIon IeveIs! There are two Instances of value adopters. 1. A dIversIfIed manufacturIng company's CED told me that the measure look at Is safety. Even If the organIzatIon or dIvIsIons are doIng well, but If the accIdent rates are goIng up, then It Is a leadIng IndIcator. f people are payIng attentIon and hurtIng themselves, ImagIne what they are doIng wIth our processes and our equIpments. Conversely If thIngs are not goIng well fInancIally but If see safety performance goIng up, thInk we are turnIng around. That shows people are payIng attentIon to processes. So those are the leadIng IndIcators, whIch help us to look on the fInancIals, whether they are beIng undermIned.
2. Look at Chrysler. 0aImler bought Chrysler In 1998. They paId a huge amount for them. t's great company and had great fInancIal results. 8ut, Chrysler In 1990s stopped InvestIng In great new products. Chrysler was successful In nIche products, mInIvans, sports utIlIty vehIcles, they were fIrst In the jeeps and they were fIrst In the product launchIngs. t took seven years for Chrysler to slIde In new product development. 8y 1998 every car company - Toyota, 8|W, 7olvo etc - everybody had SU7s and mInIvans whIch were bIgger and effIcIent. And, Chrysler had nothIng to takes Its place. f one looks at the fInancIal performance of Chrysler, It was great, but If you look at the new product development, It was terrIble.
0aImler bought Chrysler at peak. t could not turnaround based on the fInancIals. t turned around wIth new product development, qualIty and on customer satIsfactIon. n 2004 Chrysler launched 12 new products - one of whIch Is the J00c car whIch was declared as the car of the year by 10 dIfferent car magazInes. Fock and Hollywood stars were sellIng theIr |ercedes and buyIng those J00cs. t took a whIle for Chrysler, but It Invested In InnovatIon and new products. n 2004 It made 1.4 bIllon dollars. The executIve leadershIp needs to understand the need to drIve performance through leadIng IndIcators for effectIve executIon of strategy. n some cases It Is InnovatIon, and In others It Is In Knowledge |anagement and elsewhere It Is processes.
Dne of the advantages of a dIversIfIed company - take the case of CE, where there are so many IndustrIes In so many regIons. 8ut If you get one new Idea In one sector or In one part of the world, then It can be deployed across the whole organIzatIon. Everybody, no matter In what Industry or In what country they are In, they wIll benefIt from that new Idea. That Is the enterprIse value proposItIon, where you get value from the dIversIty that you have. ThIs has to be a conscIous act; and not a natural act. Dne has to have a conscIous process for managIng knowledge and Ideas. EffectIve K| measures could be: . How many new Ideas were transferred to other dIvIsIons or busInesses: . Even better measure how many new Ideas the busIness adopted from other dIvIsIons of the company. Dne has to create and share knowledge wIth sImple measures to begIn wIth. ThIs change the culture of 11 the organIzatIon, as on goes along.
Customer Is the most Important segment of aII the stakehoIders. SC concerns onIy wIth thIs segment of customers but (KapIan Interjected that we have empIoyees too) yes empIoyees, suppIIers (KapIan agaIn Interjected to say the suppIIers have to earn theIr way In). TechnoIogy whIch Is more Important to busIness growth today, where does It fInd pIace In these four segments - Is It In InternaI processes! Some of them are In processes. n the Internal process perspectIve there are four clusters of processes: 1. DperatIng processes - How Is our basIc productIon and servIce are beIng delIvered: 2. Customer management processes - To decIde whIch segment of the customer we need acquIre and to focus J. nnovatIon processes deals wIth technology how do we not get commodItIzed: 4. Fegulatory and socIal processes. ThIs Is relatIvely new, whIch Is undermIned In most of the organIzatIons. Dne has to contInue to earn the rIght to operate and a company does that through envIronment, employment, safety and Investments In the communIty.
When was In ChIna a year ago, one of the companIes was talkIng to ChIna Fesources whIch had one of theIr busIness In Cement. The head of the company was tellIng me, the provInce In whIch they operate In southeast ChIna had 50 cement factorIes. 8eIng envIronmental frIendly was one of theIr goals and they put It In theIr 8SC. At some poInt, the provInce decIded there was too much cement capacIty and decIded to shut down almost all cement plants. Cuess whIch cement factory they dId not close down the cleanest one, whIch was of ChIna Fesources. And they shut down all the dIrty ones. And thIs turned out to be a competItIve advantage.
t Is not always that the employees or the supplIers come In LearnIng and Crowth perspectIve. t depends - for example In bankIng InstItutIon, supplIers are not crItIcal. They get the money from the central or federal bank. There are lots of companIes for whom supplIers are not crItIcal. 8ut If you take the case of companIes lIke Toyota, Wal|art, and NIke - supplIers are the hot blood. So It comes under the Internal processes under supplIer management relatIonshIps. Dne should not thInk of supplIers, employees, but one should thInk of strategy. We need to ask, what Is the value creatIon: And how people - whether they are employee, supplIers etc., earn theIr way, because they help you Implement strategy.
7endor management and supplIers have become crItIcal to the operatIons of the company, and many of them come under processes. There Is only one company that know of In the Central AmerIcan regIon of Costa FIca. t Is prIvately held company whIch Is very socIally conscIousness; It cares about the envIronment and socIal Impact of the company. That Is the way the company operates. When thIs company buIlt the 8SC, they dId not have just fInancIals at the top, but they had the trIple bottom lIne: 1. FInancIal Impact 2. SocIal Impact J. CommunItIes and envIronmental Impact These were theIr strategIes, and they adopted theIr scorecard to reflect these envIronmental and socIal processes perspectIves. CettIng back the example of Cement Company In ChIna, one does not have to obey the law, but one must go beyond It. f your busIness Is wIth government, the company has to get branded as responsIble to the communIty and envIronmentally frIendly. When the government gIves the busIness, they are not just gettIng the aIrports buIlt, road buIlt, power plants buIlt, they are gettIng back theIr Investment In communItIes: they are gettIng employment to the unemployed and doIng It In such a way that the company Is not damagIng the envIronment. We have sayIng In US "You can do well, by doIng good." The challenge Is to do good whIch generate employment opportunItIes, cleaner envIronment and safety buIlt Into strategy for doIng well.
How about the vaIues and phIIosophIes of the company whIch every empIoyee Is supposed to foIIow! 0o these vaIues aIso fIgure In the SC! don't want to say that the 8SC does everythIng: 8ut one should have values and value statements 12 whIch need to be propagated. n the learnIng and growth perspectIve, you could measure the employees understandIng of the company's values. t Is much more than makIng an employee repeatIng those values. f you wake up a person In the mIddle of the nIght and ask hIm about the values, he mIght repeat them. 8ut, It should be more than that Are the values beIng practIced: Fate the values that are beIng practIced by your managers, supervIsors and fellow employees on a daytoday basIs on a 5 poInt scale.
5 Is extremely very well followed, 4 Is mostly followed, J It's DK, 2 Is... and when It comes to 1, employees say the values are great statements, but when the crunch or worst comes we go for the money. Such basIc measures reveal whether the employees have understood the values and are practIcIng. Enron had a wonderful statement on ethIcal prIncIple, and look at what happened to It. t fIled for bankruptcy for Its fInancIal mIsmanagement.
When you ImpIement a program - ShouId we use strategy as a noun or as an adjectIve - strategIc! Strategy sounds more IIke as a dIrectIon, or a methodoIogy, guIdeIIne, expressIon. t's funny that you mentIoned that. t's a bIg Issue for me and there Is ongoIng debate. n our usage whether In consultIng and presentatIons we tend to use It as an adjectIve. We have to use t as a noun. We have an offIce of strategy management. t's funny to note that some departments call themselves as 'strategIc management'. When thInk about tomorrow or next month, am thInkIng strategIcally, whIch Is an adjectIve. Strategy Is a noun and am consIstent about that.
How about deveIopIng a matrIx to measure how weII one has set the goaIs! Dne can measure anythIng. Dne should measure the outcomes and outputs. Dne of the defects Is when one starts measurIng actIvItIes and processes rather than the outcomes. Take measurIng employees who attend the traInIng programs - theIr measure Is what of our employees has the rIght skIlls needed to do theIr job. f you take thIs measure In the LearnIng and Crowth perspectIve, you can look at hIs/her crItIcal posItIon. f you look at 25 people In that posItIon - you can assess by sayIng: 5 means black belt who can traIn anybody In the world about how to do the job; 4 means very well qualIfIed; J means has the rIght qualIfIcatIons but some gaps exIst; 2 means has few skIlls but needs massIve traInIng; and 1 means the employee Is clueless and s/he has no Idea as how to do the job.
Although thIs 15 scale Is not precIse, you get a reasonable Idea about whIch person Is In 5, or 4 or J or 2. Then the message becomes clear: how do we get our employees to move from 2 to J, or J to 4 and 4 to 5. You should always measure what you want and not what you can. Such strategIc HF measures gIve guIdance for actIon for traInIng programs and competency development. Take the example of achIevIng SD 9000 certIfIcatIon - whIch Is a means to an end. The end Is whether my processes have a very few defects. That's what the organIzatIon Is tryIng to accomplIsh. The employees become more responsIve, doIng thIngs quIckly and wIth hIgher yIelds. SD 9000 Is a task or InItIatIve rather than an outcome. Try to get as much as you can about the outputs and the outcomes measures more than just the Inputs In measurIng goals In 8SC.
nput measure would be how much am spendIng on qualIty. Process measure would be how many employees are traIned on qualIty Dutcome measure Is how many defects have and what my yIeld Is.
t Is better to try and get more and more on the outputs and the outcomes measures rather than the Inputs and actIvItIes. Dften In InItIal stages of 8SC project, to get thIngs movIng you have projects and managerIal InItIatIves. Lot of people whIle usIng 8SC, thInk they have lot of data, whIch are easy to measure and very objectIve but they may not be part of the strategy.
In your experIence, how far down the IIne In organIzatIon the SC Is depIoyed as a performance management system. Strategy needs to be communIcated to everyone In terms of the performance measures. n |8D, everybody has a personal balanced score card. |any organIzatIons do have a personal balanced scorecard for theIr employees, whIch wIll have cost or revenue fIgures whIch they are tryIng to 1J Influence and theIr customer whIch Is often the Internal customer. The 8SC per se should go to them - It Is for them to work out the strategy. t could be to a busIness unIt or It could go one level below the busIness unIt. 8eyond that, one Is gettIng Into key performance or operatIonal IndIcators that are part of the 8SC strategy.
KPhC depIoys the SC to the Iast person In the organIzatIon. Is that approach goIng IIttIe above board! You can do It, If there Is a benefIt to the organIzatIon, and some organIzatIons do that. There Is no hard and fast rule about It.
If you go to Iast person In the organIzatIon, some of the quadrants In SC may not be reIevant. For exampIe the fInance quadrant.. Everybody can affect some cost fIgure. The cost of your functIon, the cost of the department and everybody can a play role In It. We can drIve down the 8SC to an IndIvIdual. f one Is In marketIng or In a sales functIon - It's the revenue fIgure. f It's a staff functIon or operatIons It's the cost fIgure. Everyone has a customer -who uses the output of what s/he produces. That's theIr customer. f one trIes to fInd out what the other person Is tryIng to accomplIsh, what that person's strategy Is, one can create more value to that customer. 8SC doesn't InsIst on thIs approach, but It can be done.
What Is the cause and effect of SC on organIzatIonaI Improvements! t all depends upon the fIve of prIncIples that we talked of earlIer and the set of practIces behInd those fIve prIncIples. |any organIzatIons have trIed 8SC and have not got the performance Improvements. The evIdence Is that more and more of these fIve prIncIples you follow along wIth theIr practIces, the performance wIll be that much hIgher. f you don't manage and sustaIn It and don't buIld It Into processes and It Is not part of your management meetIngs, resource allocatIon and budgetIng process, then It doesn't have the Impact on the performance that one would lIke.
SC Intends to create a hIgh performance organIzatIon. What shouId the organIzatIon Iook for and how shouId the organIzatIon prepare Its empIoyees for the SC ImpIementatIon. To communIcate the vIsIon of the strategy - that Includes the strategy map and balance score card. Every employee should understand the unIt or department s/he works for: what Is the unIt/department tryIng to accomplIsh: And what Is the strategy for accomplIshIng It: Then the employees try to alIgn theIr personal objectIves |8D system alIgned to the strategy objectIves. Then put In some IncentIve to reward them for theIr IndIvIdual performance on theIr personal approved objectIves but also on the busIness unIt's performance. t Is about communIcatIon awareness and also alIgnIng HF processes to the strategy you are artIculatIng at the top of the organIzatIon.
In SC, we are defInIng the strategy In four quadrants and derIvIng detaIIed actIvItIes In each of those four quadrants. y doIng so, are we curbIng the creatIve and InnovatIve thInkIng of the organIzatIon by straIght jacketIng aII actIvItIes! There are possIbIlItIes. That's why, the more one measures the outputs and outcomes, one gIves the employees more freedom as to what to do. The company says: ThIs Is what we are tryIng to accomplIsh, what Is that you can do that helps to accomplIsh It: Dne Is tryIng to drIve the employees to reduce defects. Dne Is not tryIng to tell or drIvIng them how to reduce defects. The company wants to have fewer defects and leave It up to the employees to IdentIfy what It Is that they can do to reduce the defect. CettIng back to the road buIldIng example, our goal Is to renew thIs rIght to operate the hIghway or to wIn thIs rIght In sIx other states. Then the creatIvIty Is: What Is that we can do to In order to achIeve that outcome:
Today we have been abIe to do fInancIaI engIneerIng as nothIng has been set In the Infrastructure deveIopment. Dnce you put everythIng In straIght jacket, I am afraId we are IosIng the InnovatIve thInkIng. 8ut, the goal of fInancIal engIneerIng Is to lower the cost of capItal. That Is the scorecard measure to lower rIsk adjustment capItal. FInancIal engIneerIng Is a means to that end. We are not tellIng people here Is the debtequIty ratIo; and here Is the way to structure and balance the rIght hand sIde of the 14 balance sheet. The goal Is to raIse capItal at a reasonable rate and securIty. t's about gettIng back to the outcomes; one should not confuse outcomes and means. As much as possIble get the 8SC to measure the outputs that one Is tryIng to accomplIsh and not the means. The more your 8SC measures about - how to do It, we must do thIs project and InItIatIve, then one Is lImItIng some of the dIscretIon of freedom and It hurts the projects, InItIatIves that one does Internally. f we don't set goals, as In wInnIng the crew race, anythIng goes. We have no way of sortIng out the good Ideas from the bad. Dr we try 28 good Ideas, but on the cumulatIve they don't add together. We need to focus on the strategIc dIrectIon whIch comes from the top management. When there Is focus In strategIc dIrectIon, one leaves It to the IndIvIduals and teams to fIgure out the ways of creatIng value.
DrganIzatIons need to thInk constantIy of reInventIng themseIves to be successfuI. Look at the government organIzatIons, the kInd of InternaI processes that have been IaId down - they are so perfect, nobody can fInd fauIt wIth them. And yet, they are not reIevant today. The problem Is we told the people In the government organIzatIons what the processes are, but not what the outcomes are supposed to be. How do we have a posItIve socIal Impact on cItIzen's lIfe: And not the detaIled processes one needs to follow. So more the measures relate to the posItIve Impact on cItIzens' lIves and less on mechanIcal procedures one follows, then, you are allowIng for more InnovatIon and adoptIon. don't thInk we need a fIfth box In 8SC for that purpose as someone just suggested. Dne should not confuse motIon wIth progress. The fact that we are doIng somethIng dIfferent doesn't mean we are doIng It better. Not all new Ideas are good obvIously. 8SC brIngs In the dIscIplIned process of decIdIng whIch course we should take. 8SC Is about good strategy that can be executed brIllIantly. That brIllIant strategy needs to be explaIned to the employees for them to execute. There Is no bIg deal about strategy; there are not that many strategIes out there. What really matters Is how well you execute agaInst the strategy. The search for proper strategy, would not spend huge amount of tIme on that. |uch of the value Is In executIon. And thIs helps you In executIng the strategy.
.Vanch proposed the vote of thanks on behalf of CMR Croup and closed the nteractve sesson wth touch of humor by sayny Talkny of quadrants and boxes, f l had four boxes as n SC, ths evenny, l would say thank you, thank you, thank you, and thank you." He complmented the SC strateyy whch s wholesome approach for manayny busness successfully and most mportantly the nsyhtful wsdom of 0r. Kaplan. A memento was also presented to 0r.Kaplan.