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J a n u a r y – Fe b r u a r y 20 08 | Vo l u m e 1 0 , N u m b e r 1

T H E S T R AT E G Y E X E C U T I O N S O U R C E

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Case File..............................6
Developing the Strategy: Statoil: Scorecard Success—
the Second Time Around
Vision, Value Gaps, and Analysis It took two attempts, the second
from within a business unit, for the
By Robert S. Kaplan and David P. Norton, with Edward A. Barrows Jr. BSC to gain traction at Norwegian
O N

oil giant Statoil. A powerful manage-


During the past 30 years, much attention has been focused on how ment information system, the BSC,
and a program that replaced the
companies can formulate new strategies for sustainable advantage. traditional budget revitalized the
In this first of two articles on strategy development, adapted from company, a 2007 BSC Hall of Fame
winner, smoothing the way for its
Kaplan and Norton’s forthcoming book, The Execution Premium, merger with Hydro this past fall.
the authors explore the key steps that establish a foundation for
Tools & Techniques..........................9
formulating strategy, from defining mission, vision, and values to
Take an Initiative
strategic analysis. Management Health Check
Our work on strategy execution over the past 15 years has generally assumed Failed initiatives can cost dearly.
So can misreading the symptoms
the organization had a strategy in place. We’ve viewed the strategy development of your initiative problems. An initia-
process as a “black box” that produced a strategy to be implemented using strategy tive management assessment is
maps and Balanced Scorecards. After much additional experience, we have now the most logical, cost-effective, and
credible approach to diagnosing
observed the strategy development practices followed by the most successful what’s wrong with the complex
organizations. While the actual selection of a strategy remains an art, it is an art process of initiative management—
that should nonetheless be governed by a systematic process—one that defines the and will help put your organization
back on track.
organization’s purpose and goals and carefully examines the external and inter-
nal environment to identify opportunities and constraints regarding that strategy. Human Capital ....................11
HR at the Heart of
A 2006 McKinsey survey reported that over 75% of the 796 companies polled Strategic Transformation:
had a formal strategic planning process. Among those claiming to have one, The EMC Turnaround

more than half said that the process played a significant role in helping develop It’s talked about incessantly, but
actual examples are rare: the organi-
corporate strategy. Of those who are satisfied with their strategic planning zation whose HR group truly sits at
process, fully 79% believed planning significantly affects strategy development.1 the strategy table. In this exclusive
interview, EMC’s HR chief describes
Most successful companies, in our experience, follow the systematic strategy his group’s role in transforming
development process shown in Figure 1. They start by developing or reaffirming EMC’s strategy and restoring the
firm into a technology powerhouse.
their mission, vision, and values. Next, they determine the concrete goals and
outcomes that would represent the achievement of their vision. From this flows Performance Management......14
the identification and analysis of key issues, including the external and internal Why the BSC Is Just as
Effective for Small and
forces that affect the company’s strategy. This is followed by the formulation of Medium-Sized Firms
the new strategy and—especially for new, transformational strategies—creating Some small and medium-sized
the case for change throughout the organization. These four strategy develop- businesses (SMBs) believe that the
BSC (and most management tools)
ment steps address the following four questions: are just for big organizations.
In reality, SMBs have as much to
1. What business are we in and why? (Mission, vision, and values) gain by using the BSC as any large
2. Where are we going? (Strategic goals) company, as long as they recognize
how to use it. Big resources are
3. What are the key issues that our strategy must address? (Strategic analysis) not necessary. Mario Bognanno, a
veteran consultant to small and
4. How can we best compete? (Strategy formulation) medium-sized busineses, debunks
some common myths, offering
Step 1. Crafting Mission, Vision, and Value Statements examples from smaller firms that
have turbocharged their perform-
The mission is a brief, typically one-sentence, statement that defines the funda- ance with the BSC.
mental purpose of the organization. It should include what the organization
Continued on next page
Balanced Scorecard Report

provides to its clients and inform environment”—but also explains Balanced Scorecard Report
executives and employees about their importance:
Editorial Advisers
the overall goal they have come Many people feel Whole Robert S. Kaplan
together to pursue. Foods is an exciting company
Professor, Harvard Business School
David P. Norton

Examples of excellent mission of which to be a part and a Director, Palladium Group, Inc., and cofounder,
Balanced Scorecard Collaborative
statements include: very special place to work.
Publishers
[Our] core values are the pri- Robert L. Howie Jr.
• “To provide society with superior mary reasons for this feeling, Managing Director, Balanced Scorecard Collaborative

products and services by devel- and they transcend our size Edward D. Crowley
General Manager, Newsletters, HBS Publishing
oping innovations and solutions and our growth rate. By main-
Executive Editor
that improve the quality of life taining these core values, Randall H. Russell
and satisfy customer needs, regardless of how large a com- VP/Research Director, Balanced Scorecard Collaborative
pany Whole Foods becomes, Editor
and to provide employees Janice Koch
we can preserve what has
with meaningful work and Balanced Scorecard Collaborative
always been special about our
advancement opportunities, company. These core values
Circulation Manager
Bruce Rhodes
and investors with a superior are the soul of our company.3 Newsletters, HBS Publishing
rate of return.” (Merck) Design
The vision is a concise statement Robert B. Levers
• “To organize the world’s infor- that defines the mid- to long-term Levers Advertising & Design
Letters and Reader Feedback
mation and make it universally (three- to ten-year) goals of an Please send your comments and ideas to
accessible and useful.” (Google) 2 organization. The vision should editor@thepalladiumgroup.com.

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“Selling the highest quality natural of goods and people in North E-mail: bsr@hbsp.harvard.edu

and organic products available,” America by 2012” provides a Copyright © 2008 by Harvard Business School
Publishing Corporation and Palladium Group, Inc.
“Supporting team member excel- clear, specific aspiration; so does Quotation is not permitted. Material may not be
reproduced in whole or in part in any form whatsoever
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Harvard Business School Publishing is a not-for-


Figure 1. The Strategy Development Process Model profit, wholly owned subsidiary of Harvard University.
The mission of Harvard Business School Publishing
is to improve the practice of management and its
impact on a changing world. We collaborate to create
Strategy products and services in the media that best serve
Development Objective Platform Issues Representative Activities our customers—individuals and organizations that
Process believe in the power of ideas.

Mission, Vision, To reaffirm the highest-level • Establish the vision in • Mission analysis Palladium Group, Inc. helps its clients achieve an
and Values guidelines about organizational terms that are conducive • Vision statement execution premium by linking strategy and operations
(What business are purpose and conduct to execution • Core values and enabling mission-critical links with timely, robust
we in, and why?) • Enhanced vision data. Balanced Scorecard Collaborative (BSCol) is
Palladium’s education and training division. Our products
and services in strategy, finance, and IT consulting,
Strategic To clearly define the highest- • Establish the economic • Macro mission–measure conferences, technology, training, research, publications,
Goals level financial or mission goals model that will be used • Value gap decomposition and communities are delivered globally from offices
(Where are that will drive the strategy throughout the strategy • Strategic themes worldwide. BSCol also manages the Balanced Scorecard
we going?) management process • 3- to 10-year goals Hall of Fame for Executing Strategy™ program. To learn
• Financial model more, visit www.thepalladiumgroup.com, or call
781.259.3737.
Strategic To identify, through structured • Define the linkage between • Environmental scan (PESTEL)
Analysis analysis, the events, forces, and the influencing forces and • Internal scan (SWOT)
(What are our experiences that impact the process of value creation • Strategy of record review
key issues?) and modify the strategy • Key issue identification

Strategy To define where and how the • Ensure that changes in • Where to compete (niches) Explore the many resources available on
Formulation organization will compete strategy are linked to changes • Differentiators
the Balanced Scorecard and executing
(How can we in the planning and (value proposition)
execution processes • How to compete strategy at BSC Online. Join today—
best compete?)
(strategy map) membership is free. For details, visit
• Establish the boundaries of www.thepalladiumgroup.com/bsconline.
• Financial model/Stratex
permissible change
• Strategic change agenda
Sign up for the electronic version of
BSR—available only to subscribers—
at www.bsronline.org/ereg.
This four-step process is followed by most successful companies that have a strategic
planning process. The first three steps—defining mission, vision, and values; setting strategic
goals; and performing analysis—set the stage for the last step, formulating the strategy.

2
January–February 2008

a focus on seamless customer “land a man on the moon and Enhancing the Vision
relationships and satisfaction, return him safely to earth”—and
producing financial returns in a specific time frame—“by the Organizations can now use the
the top quartile of the industry.” end of the decade.” four perspectives of the strategy
map to develop an enhanced
Quantifying the Vision Another excellent example of a vision that is more comprehensive
well-crafted vision statement is than a traditional vision statement
If vision statements are to guide that of Leeds University (UK): and easier to translate into an
strategy development, they must “By 2015, our distinctive ability achievable strategy. The enhanced
be not only aspirational and to integrate world-class research, version moves the vision beyond
inspirational—they must also be scholarship, and education will a simple outcome statement of
measurable. Many organizations’ have secured us a place among the vision (“to become the pre-
visions are too vague, such as: the top 50 universities in the ferred provider”) to a more com-
“To be our customers’ preferred world.” It contains the three prehensive picture of the enabling
provider.” While describing a requisite quantifying components: factors with which to achieve the
laudable objective, it provides no vision, including key processes
guidance for developing strategy. 1. Quantified success indicator:
“Be ranked among the top and intangible assets such as
A quantified vision statement people and technology. The
provides a clear focus for the 50 universities in the world”
enhanced vision bridges vision
strategy by including a measura- 2. Definition of niche: “Integrate and strategy.
ble outcome and a targeted value. world class research, scholar-
ship, and education” Nemours, a nonprofit foundation
The vision statement of CIGNA dedicated to the health and med-
Property & Casualty (spun off in 3. Time line: “by 2015” ical treatment of children, devel-
1999) in just nine simple words— oped an enhanced vision as the
“To be a top-quartile specialist By incorporating these three
components, a vision statement basis of its strategy. Founded
within five years”—contains the nearly 70 years ago as the Alfred
three essential components of increases the clarity of the
message, adds a discrete defini- I. duPont Institute, Nemours is
a good vision statement: considered the world’s leading
tion of success that can be
1. A quantified success indicator: cascaded to lower organizational treatment center for children with
“top quartile” in profitability levels, and establishes a time complex orthopedic conditions.
frame in which the success will Over the past 25 years, it has
2. A definition of niche: expanded its scope of services
“a specialist,” not a general- occur. It also sets an ambitious
target for the strategy at the high- and geographic reach to have
purpose underwriter an even greater impact on the
est organizational level—and early
3. A time line for execution: in the planning process. health and well-being of children.
“five years” Nemours developed a strategic
The organization’s mission and plan to deliver on its vision:
The vision statement thus provides core values typically remain stable “Freedom from Disabling
a clear set of directions and over time. Its vision paints a Conditions.” In Nemours’s
expectations within which the picture of the future that clarifies 2008–2012 Annual Plan, CEO
entire strategy can be framed. its direction over the next three David Bailey, an MD and MBA,
Vision statements for nonprofit to ten years, and helps individuals described the objective of the
and government organizations understand why and how they Nemours strategic planning
are more complex, in that the should support the organization. process:
organization’s mission replaces Even though mission, vision, and
[Our] approach...was not to
financial performance as the values statements remain more
identify opportunities for
success measure. In 1961, U.S. or less stable, most organizations improvement. Rather, the effort
President John F. Kennedy still begin their annual strategy was directed at what must
offered one of the most famous development process by reviewing be done in the future to have
and effective public-sector vision and reaffirming them. As one an even greater impact on
statements: for the U.S. space chief executive has noted, “It children, to deliver measurable
program “To land a man on is important that the executive results, and to further enable
team constantly remind itself Nemours’s influence on issues
the moon and return him safely
of the foundations for what we affecting children by developing
to earth before the end of the broad recognition [that] would
decade.” In addition to the vision’s are doing.”
also honor Mr. duPont’s trans-
inspirational power, it described formational act of philanthropy.
a clear measure of success—
3
Balanced Scorecard Report

Nemours built its strategy map organization around achieving Figure 2 illustrates how CIGNA
with its vision and mission at a stretch target objective—to addressed two broad questions:
the top, defining the ultimate challenge the organization to where the CR improvements
objective and accountability of the become much better. Without would come from, and when.
enterprise, and its core values at strong leadership, an organization The executive team decomposed
the bottom, recognizing that they becomes complacent and, at best, the overall strategy into four
were foundational for everything will only achieve incremental strategic themes, each represent-
it did. Its vision simply and suc- improvement. As Collins and ing a relatively independent value-
cinctly describes Nemours’s Porras note, “Visionary companies creation process. It then estimated
desired destination. This simple may appear straitlaced and con- how much each of the four themes
vision statement, however, provided servative to outsiders, but they’re could contribute to closing the
little guidance for shaping the not afraid to make bold commit- value gap. The team also estimated
strategy. Nemours thus created an ments to BHAGs, ‘Big Hairy how quickly each theme could
enhanced vision (which it calls its Audacious Goals.’” 4 achieve its value gap target during
“highest-order strategy map”) to the designated five-year time frame.
With a stretch target for success
facilitate the transition from vision At this point, these were informed
now embedded in the vision, the
to strategy. The enhanced vision estimates; they were not yet based
executive team defines a value
described four critical goals: (1) on a detailed strategy. This first
gap—the difference between the
“To be a leader in improving chil- pass at determining how a strategy
desired outcome and what could
dren’s health through our integrated would close the value gap, how-
be achieved by maintaining the
health system—becoming a pre- ever, showed the feasibility of
status quo with the existing strate-
eminent voice for children”; (2) the overall strategy and laid the
gy. The value gap represents the
“To care for each and every child groundwork for more detailed
difference between aspiration
as if he or she were our own”; (3) thinking within each of the four
and reality; it becomes the goal
“To be effective stewards of all of strategic themes.
for the new strategy to fulfill.
our assets, continually improving
CIGNA’s approach illustrates the
them to advance our mission”; CIGNA P&C power of linking vision to strategy
and (4) “To be a great place to
A key financial measure for prop- early in the strategy development
work.” These goals then became
erty and casualty insurers is the process. It ensures that the vision
the foundation of the strategy
“combined ratio” (CR), which is taken seriously and can, in fact,
map’s four strategic themes—
equals the ratio of cash outflows be linked to actionable, account-
Impact & Community, Service &
from expenses and claims payouts able results—both important com-
Quality, Efficiency & Environment,
to cash inflows from premiums. ponents for successful strategy
and People & Learning—and led
At the start of CIGNA’s journey, execution. Establishing the vision
naturally to the three remaining
the CR for a top-quartile performer and setting stretch targets at
strategy development steps, culmi-
was 103; CIGNA’s was 140. Thus, the front end of the strategy
nating in strategy formulation with
the new strategy had to close development process establishes
a complete strategy map repre-
a CR value gap of 37 points the framework for subsequent
sentation of the Nemours strategy.
within five years. steps of strategy development.
Step 2. Strategic Goals: Define
and Decompose the Value Gap
Figure 2. How CIGNA P&C Decomposed the Value Gap
Quantifying the vision makes it
possible to integrate target setting
Operational Customer Innovation
with the exploration of feasible effectiveness management
strategies. The vision’s quantified
success factor becomes the CORPORATE GOAL Improve Focus on Align Upgrade
STRATEGIC
reference point for judging the Reduce combined THEME
agents’
productivity
target
markets
underwriting
and claims
under-
writing Total
feasibility of strategies. The success ratio by 37 points
in five years
Year 1
factor defines the desired outcome
Year 2 –11 –6 –17
from successful strategy execution 140

Year 3 –4 –2 –6
(e.g., “achieve top-quartile prof- 103
Year 4 –4 –5 –9
itability,” “rank among the top 50 1 2 3 4 5
Year 5 –2 –3 –5
universities in the world”). One of – 37 pts.
the key characteristics of a strong
leader is the ability to rally an
Executives decomposed the strategy into four strategic themes. They then estimated how
much each theme could contribute to closing the 37-point value gap, and how quickly it could
do so, within their five-year time frame.
4
January–February 2008

Step 3. Strategic Analysis technological capabilities, and of information for a management


geographical reach. The dimen- team, much of which can be con-
With a clear picture of what it sions can be changed to provide fusing when examined in totality.
needs to achieve, the company different screens of performance. SWOT analyses help summarize
must now perform an external Additional information can be this information into a succinct
and internal analysis that includes depicted on the table by identify- list that helps the executive team
assessing the impact of industry ing each competitor with a circle understand the key issues that the
trends and its own performance whose size is proportional to its organization must contend with
and positioning relative to com- performance on a key indicator when formulating its strategy. For
petitors, as well as developing such as market share, profitability, example, strengths can be lever-
a detailed understanding of how or sales. aged to pursue opportunities and
it presently delivers value. to avoid threats, and managers can
Internal Analysis
External Analysis be alerted to internal weaknesses
The internal analysis examines an and external threats that need
The executive team needs to organization’s own performance to be overcome by the strategy.
understand the impact of macro- and capabilities. Companies that Within each SWOT dimension, the
and industry-level trends on the have not yet developed a Balanced list can be prioritized to reflect
company’s strategy and operations. Scorecard will rely heavily on each element’s overall importance
The external analysis assesses financial information to assess to the organization.
the macroeconomic environment recent performance. A widely
of economic growth, interest Traditional SWOT analysis can
used analytic tool is value chain
rates, currency movements, input be combined with the BSC frame-
analysis, also introduced by
prices, regulations, and general work to set objectives critical to
Michael Porter,6 which identifies
expectations of the corporation’s the organization’s future success.
the sequence of processes neces-
role in society. Often this is called The BSC SWOT matrix, created
sary to deliver a company’s prod-
a PESTEL analysis, reflecting its by performing a SWOT analysis for
ucts and services to customers. In
political, economic, social, techno- each of the BSC perspectives, pro-
addition to the primary activities
logical, environmental, and legal vides a framework that integrates
of creating a market, producing
components. the SWOT strategy planning tool
products and services, and selling
and the Balanced Scorecard strat-
The external analysis should to customers, the value chain can
egy execution framework. The
include an industry-level examina- encompass secondary or support
resulting single-page summary
tion of industry economics using activities, such as research and
provides a valuable reference
frameworks such as Michael development, human resource
point for managers to assess the
Porter’s Five Forces: the bargaining management, and technology
issues that must be addressed by
power of buyers, the bargaining development, which facilitate the
their strategy, organized by results
power of suppliers, the availability primary value creating processes.
for shareholders or customers,
of substitutes, the threat of new The value chain model helps a
processes, and people. 
entrants, and the intensity of firm identify those activities that
industry rivalry. The Five Forces it intends to perform differently Part II: Formulating and
model calibrates the attractiveness or better than competitors to Launching the Strategy
of an industry and aids in identi- establish sustainable competitive
Authors’ note: We would like to recognize
fying specific forces that are shap- advantage. the important efforts of Ed Barrows in
ing it, favorably or unfavorably.5 SWOT Analysis developing this work.
The industry analysis should 1. “Improving Strategic Planning: A McKinsey
After performing the external and Survey,” McKinsey & Co. (September 2006).
also include a summary of the
internal analyses, the strategic 2. See: http://en.wikipedia.org/wiki/Mission_state-
company’s performance on ment (accessed July 25, 2007).
planning participants conduct a
multiple financial ratios relative 3. See http://www.wholefoodsmarket.com/compa-
SWOT analysis. Perhaps the earli-
to its industry competitors. ny/corevalues.html.
est and most fundamental of all 4. Jim Collins and Jerry I. Porras, Built to
Finally, the external analysis strategy analysis tools, SWOT Last: Successful Habits of Visionary Companies
(HarperCollins, 1994).
includes competitor assessments. analysis identifies the company’s
5. Michael E. Porter, Competitive Strategy:
One approach is to plot all the existing strengths and weaknesses Techniques for Analyzing Industries and
competitors in the industry on (internal attributes) and emerging Competitors (Free Press, 1980).
a two-by-two table, with the opportunities and worrisome 6. Michael E. Porter, Competitive Advantage:
Creating and Sustaining Superior Performance
axes representing some combina- t hreats (external attributes). (Free Press, 1985).
tion of key competitive dimen-
A well-conducted external and
sions such as product scope, Reprint #B0801A
internal analysis generates a host
5
Balanced Scorecard Report

aimed to streamline the myriad


Statoil: Scorecard Success—
F I L E

key performance indicators that


the Second Time Around had crept into Statoil’s earlier BSC
program, standardize automatic
C A S E

By Lauren Keller Johnson, Contributing Writer data capture, and provide reliable
performance data through a user-
Its first implementation of the BSC foundered. But then friendly system. Several represen-
frontline managers in one of Statoil’s business units drove tatives from other major compa-
a bottom-up revival of the methodology—which included nies who have visited Statoil have
abandoning the traditional budget process. The benefits to pronounced the MIS “world class.”
the entire organization—Scandinavia’s largest company, and
Impressed by the results of this
a 2007 BSC Hall of Fame winner—have been remarkable. bottom-up effort, the entire busi-
It’s not as much of a household they could no longer rely on the ness unit adopted the MIS in
name as other leading oil compa- region’s resources as the main 2003. Statoil’s remaining business
nies, but Norway-based Statoil is engine of the company’s growth. units, the overall corporation, and
the world’s second-largest opera- Statoil would have to draw more finally the support units followed
tor of offshore oil and gas fields, than ever on its international suit during 2004 and 2005. Thus,
and the third-largest seller of resources to spur sustainable Statoil experienced a reversal of
crude oil. An integrated oil and increases in revenues. the usual top-down BSC cascade.
gas company, Statoil was founded
In 1997, the finance group, Statoil dubbed its revived score-
in 1972 and today is Scandinavia’s
intrigued by the Balanced card program “Ambition to Action”
biggest company. (Statoil became
Scorecard’s mix of financial and (here abbreviated as A2A). It wasn’t
StatoilHydro in late 2007 after
nonfinancial perspectives and until 2005, when Statoil “kicked out
merging with Hydro, Norway’s
its emphasis on the link between the competition”—its catchphrase
second-largest oil company; the
performance indicators and for abolishing the budget process—
events described in this article
strategic objectives, encouraged that A2A went from being a
preceded the merger.) The organi-
BSC adoption to support execu- passive reporting document to
zation has 24,000 employees
tion of the company’s new growth the active tool it is today. It is
operating in 34 countries around
strategies. However, the program now the cornerstone of Statoil’s
the globe, and it boasted revenues
generated limited success for performance and strategy man-
of almost €49 billion ($70 billion)
several reasons: although Statoil agement process, which includes
in 2006 alone. Previously state-
had established a number of target setting, strategic planning,
owned, the company went public
scorecards throughout the busi- and evaluation and reward.
in 2001, although the Norwegian
ness, the company failed to Everyone who works at Statoil
government still holds substantial
link the BSC sufficiently to other can see other units’ A2As and all
ownership in the firm.
business processes; traditional performance results, except for
Statoil has five business units: budgeting eclipsed the scorecard;
and the program was not given A T A G L A N C E
• Exploration and Production
information system support.
Norway Statoil
With few mechanisms in place to
• International Exploration Stavanger, Norway
encourage its use, the BSC lan-
and Production (All figures 2006)
guished for the next three years.
• Natural Gas
Industry: Integrated oil and gas*
• Manufacturing and Marketing All that changed in 2000. Frontline
• Technology and Projects managers within the Exploration Total revenues: €49 billion
and Production Norway unit saw ($70 billion)
The BSC Revisited untapped potential in the BSC Employees: 24,000
and decided to revive Statoil’s
Change is a constant for all Operations: Produces 1.1 million
BSC program. They began by barrels/day; operates in 34 countries,
businesses, but more so for developing a management infor-
companies whose product is a primarily in Scandinavia, Europe,
mation system (MIS)—a Web and the Middle East
non-renewable resource. Though interface built atop an SAP busi-
the Norwegian continental shelf BSC adopted: 1997; readopted
ness data warehouse—that would in 2000
has long fueled much of Statoil’s enable them to track and report
success, the area’s reserves have performance data. The MIS project,
* This sector consists of companies engaged
in oil and gas exploration and production, as
already peaked, and in the 1990s, led by Arvid Hollevik, head of well as at least one other significant activity
executives at Statoil realized that Performance Management Systems,
in oil refining, marketing and transportation, or
in the chemicals industry.

6
January–February 2008

sensitive stock-exchange informa- Figure 1. Statoil’s Balanced Scorecard


tion, on the MIS. The A2A score-
Perspective Strategic Objective Performance Measures
card is the default opening image
whenever anyone logs on to the People and A value-based and • Change capability
Organization performance-driven, • Performance culture
MIS. At quarterly meetings (Learning and globally competitive • Progress PO plan
between unit leaders and Statoil growth) organization
president and CEO Helge Lund, Health, Safety, Zero harm to people • Serious incident frequency
discussion centers on the business and Environment and the environment • Total recordable injury
(New) frequency
results reflected in the A2A system.
Operations First quartile • Access cost (unit cost of exploration)
Growth and Responsible (Internal) operations • Production
Business: Two Imperatives • Production cost (USD/barrel)

Statoil’s corporate-level scorecard


Market Deliver robust growth • New reserves
depicts five perspectives (the (Customer) beyond 2010 • Reserves to Decision Gate 3
fifth being “Health, Safety, and (final decision to develop a field)
• Short-term gas optimization and trading
Environment”) instead of the • Third-party oil trading volumes
traditional four, each with a single
strategic objective and several Financial First quartile • Relative ROACE
shareholder returns • Relative shareholder term
performance measures. (See
Figure 1.) (Statoil’s strategy map The perspectives are listed in reverse order so that employees focus more
is essentially no different than its on the drivers of performance than on results.
corporate-level BSC, since it does
not depict causality with arrows.) As for responsible business, Statoil Bogsnes in an article at www.the-
Today, there are more than 500 has made a similarly determined financedirector.com. (Bogsnes
A2A scorecards throughout the effort. Initiatives have included oversaw the implementation of
company. modernizing health, safety, and the BSC and the abolition of
environmental (HSE) programs; budgets at Borealis, the Denmark-
Statoil’s BSC shows perspectives improving HSE risk-evaluation based plastics manufacturer and a
in the reverse order of most processes and tools; and imple- 2001 BSC Hall of Fame winner,
BSCs, because, as Bjarte Bogsnes, menting action plans for chemical before joining Statoil in 2002.) For
A2A program manager, observes, health risks. In 2006, the company one thing, budgeting forces com-
“We want people to focus on the built the world’s first offshore panies to decide on funding once
drivers more than on the end CO2 capture plant, in the North a year, “which is not always the
results.” Since people read from Sea; eight million tons have right time.” Moreover, budgets fos-
the top down, they will see the already been stored there. Such ter micromanagement, not
drivers first. efforts have paid off: for the last employee engagement. “If you ask
The corporate scorecard depicts four years, Statoil has been voted people what makes them per-
two imperatives that are especially number one in its industry on form,” says Bogsnes, “I doubt you
close to executives’ hearts: growth the Dow Jones Sustainability will get budgets as your answer.”
and responsible business practices Index, the leading corporate
Another drawback of budgets is
(as expressed by the objective environmental indicator.
that they mix target setting (ambi-
“Zero harm to people and the Blowing Up the Budget tious goals), forecasting (realistic
environment”). To spur growth, expectations of what will be
the company has launched several Statoil has been exemplary in achieved), and resource alloca-
important initiatives, including ensuring that budgeting is driven tion. Bogsnes maintains that these
developing the large Snøhvit gas by strategy, a best practice in the processes should be uncoupled,
field in the Arctic to export lique- SFO principle “Govern to make with resources deployed more
fied natural gas to the United strategy a continual process.” dynamically based on initiatives’
States. In the 1990s, it formed an To ensure that A2A delivered as strategic importance, not accord-
alliance (now terminated) with BP promised, Statoil took a bold step ing to predetermined annual
to explore reserves in countries in 2005: abandoning traditional funding. Budgets also focus on
such as Angola and Azerbaijan. budgeting and replacing it with, explaining what has happened in
All told, the company expects among other things, what it calls the past rather than emphasizing
its overseas production to reach “dynamic resource allocation.” what must happen in the future,
50% of its Norwegian production The conventional annual budget he adds. Finally, budgets can
in the near future. process has numerous flaws, actually be counterproductive.
explained Program Manager According to CFO Eldar Sætre,
7
Balanced Scorecard Report

many scorecard implementations Performance is then evaluated the company,” says Sætre, “and
fail because they compete with and rewarded on two equally we have had an enthusiastic
the budget as a management tool. weighted criteria: response from the organization.
“This confuses the organization,” The current number of Ambition
Delivery, as measured by KPI
he explains. “When you have to Actions [scorecards] in our MIS
results and tested by questions
both, the budget normally wins is mainly a result of pull…from
such as: Were agreed upon
because it has the longest tradi- the line, supported by a gentle
or necessary actions taken? Did
tion and managers are familiar corporate push.” Sætre adds that
delivery on these KPIs contribute
with it.” A2A “has also built bridges and
to our strategic objectives?
dialogue between strategy, finance,
Intrigued by this new approach, How ambitious were the KPI
and HR functions in a way we did
Statoil’s board of directors targets? Should our assumptions
not see before.”
approved the company’s 2006 be reexamined? Are these
A2A in place of a budget. Today, results sustainable? The numbers bear these observa-
all executive-level business meet- tions out: employee engagement
Behavior, as evaluated by 360/
ings at Statoil are built on the and understanding of Statoil’s
180/90-degree feedback surveys,
A2A process. “Removing the performance management process
personal development plans, and
budget really turbocharged our have steadily increased over the
daily observations from bosses
scorecard process,” says Bogsnes. last few years. Since going public
and colleagues indicating how
“It became very visible to the in 2001, Statoil has enhanced
well people embody Statoil’s five
entire organization that we now growth and profitability simulta-
core values. These values are:
were dead serious about Ambition neously, a rare accomplishment
“imaginative” (including being
to Action.” in the industry. From 2001 to 2006,
curious, stimulating new ideas,
revenues soared from $38.7 billion
A2A starts with defining strategic and pursuing new business
to $68.5 billion; stock price, from
objectives, expressing them as opportunities); “hands-on” (for
$6.76 to $27.28. (Much of this is,
key performance indicators, and example, making constructive
of course, linked to higher oil
setting targets for KPIs based on demands on each other, following
prices, which is why Statoil uses
benchmarking and other tech- through on decisions, and setting
peer comparisons for performance
niques. Strategic initiatives are ambitious targets); “professional”
measurement.) And compared
then planned, results forecasted, (such as continuously developing
with nine competitors (BG,
and resources allocated. “This expertise, demonstrating a cus-
Hydro, Chevron, BP, ExxonMobil,
prompts managers to ask ‘Is tomer orientation, and promoting
ConocoPhillips, ENI, Shell, and
this project the right thing to diversity); “truthful” (communicat-
Repsol), Statoil ranked third in
do?’ when evaluating a potential ing in an open, precise way and
compound annual growth rate
initiative, rather than asking ‘Do raising ethical issues immediately);
of production from 2005 to 2007.
I have the budget for it?’” notes and “caring” (contributing to
In 2006, it ranked second in returns
Bogsnes. The process unfolds sustainable development, accept-
on average capital employed.
on an annual basis, although the ing social responsibility, and
company is considering moving continuously improving the But Statoil’s story won’t end here.
to a more dynamic, event-driven working environment). The company plans to continue
process. using A2A in StatoilHydro; that
For each person, a delivery
was a condition of the merger
Aligning Personal Goals and behavior matrix is used to
agreement. And it is considering
with Strategy calculate a performance score
using the scorecard even more
that determines pay increases
To help employees understand continually, by updating A2A fore-
and bonuses. In addition, all
Statoil’s performance management casts when and where appropriate
employees earn a bonus based
process, the company published in the organization, based on rele-
on how well the company has
“The Statoil Book,” a booklet vant changes in the business land-
performed on two core KPIs:
that explains the company’s values scape. Given the bold initiative
relative return on capital employed
and leadership principles and demonstrated by its people in
and relative shareholder return
the A2A model. But its most pow- driving adoption of the BSC from
(“relative,” since performance is
erful tool for gaining employee the bottom up, more surprising
measured against industry peers’
support has been its approach achievements may be on hand as
performance).
to aligning personal goals. The Statoil completes its transformation
planning stage of A2A leads to Thanks to these and other prac- into StatoilHydro. 
the definition of managers’ and tices, “Ambition to Action has
become a household [term] in Reprint #B0801B
employees’ performance goals.
8
January–February 2008

Take an Initiative
T E C H N I Q U E S Information on performance, flow,
and responsibility for each of
Management Health Check these corresponding processes
may be obtained through process
By Peter LaCasse, Initiative Management Practice Leader, Palladium Group, Inc. documentation, or, if documenta-
tion is not available, through
Realizing the value from initiative investments—the very interviews with the responsible
activities designed to advance strategic change—is a major managers. Interviews also offer
concern of senior managers. Failed initiatives not only waste the advantage of providing addi-
resources, but they can also undermine performance—and tional insight into how each
&

the organization’s competitiveness. But how can you tell process supports—or hinders—
T O O L S

whether your initiative problems lie with the initiatives initiative management. Capturing
themselves or with your initiative management process? both the current state and the
Conduct an initiative management assessment. desired end state for the process
will help highlight gaps that may
Do any of these ailments sound smart to step back and assess be contributing to the problems.
familiar? Your initiatives aren’t the entire intitiative management Conferring with other people
closing performance gaps. They process so you can diagnose the beyond those managing the
wither away in midstream. They problem accurately. An assess- initiatives—executives, business-
aren’t doing the job—or, worse, ment entails gathering information line and functional managers,
are causing more harm than good. on the existing process (and PMO managers, project managers,
They never make it out of the related business processes) in innovation team members, or
development incubator. They order to map it, analyzing trends even other initiative team members
become irrelevant after a market andcommon practices, and finally (those involved in Six Sigma
or organizational shift. diagnosing the cause or causes programs, for example)—may
of failure. An assessment can also offer further insights, such as how
Any one of these problems usually
be used to rally support among structuring the intitiative manage-
signals bigger trouble—indicating
all those who have a stake in the ment process differently may pro-
either a problem with the initia-
process and help build the case vide greater value, or, conversely,
tive management process, or an
for improving the process overall. may make their work more difficult.
organization’s need of one. In
“Initiative Management: Putting Mapping the Current State Because leaders often want to
Strategy into Action” (BSR preserve their pet projects—or
November–December 2007), To help senior managers under-
their power base, which may be
Travis Manzione and I outlined stand the current initiative man-
encroached on by any changes
a four-step process for managing agement process, first map it.
in initiative management—some
initiatives that includes identifying Initiatives often touch multiple
may attempt to conceal or soft-
and collecting ideas, evaluating business processes, such as strate-
pedal problems. That’s why it’s
and prioritizing them, planning gic and operational planning,
important to obtain a wide range
and approving implementation, resource prioritization, budgeting,
of input from several management
and instituting project manage- strategy and operational reviews,
levels to obtain the clearest possi-
ment and portfolio management project management, and process
ble picture. A survey is a good
practices. Problems like the ones improvement programs such as
way to reach a large number of
cited above can invariably be TQM, Lean Manufacturing, and
stakeholders. It also allows for
traced to problems in executing Six Sigma. It’s therefore important
anonymity, which encourages
one or more of these steps. If to gather information on each to
candor. The survey should feature
your organization is struggling precisely document an initiative’s
10 to 20 multiple-choice questions
with identifying effective initiative life cycle. Understanding these
covering the initiative management
ideas, for example, it may be linkages helps determine how
process, and allow for open-ended
owing to the lack of a mechanism the initiative management process
feedback. (See box on next page.)
for capturing such ideas. should be designed to either
connect with or best support Diagnosing the Problem
The many moving parts of one or more of these adjoining
initiative management make it processes. For example, strategic Once data on the current process
difficult for senior managers to planning processes often yield is collected, it needs to be organ-
know how to pinpoint a prob- new initiative ideas that should ized and analyzed. Data should
lem’s source and discern the best be evaluated through a formal be classified according to process
way to remedy it. But before initiative management process. step. This will help highlight the
attempting remedial action, it’s
9
Balanced Scorecard Report

Your diagnosis may reveal: Changes in the initiative manage-


Sample Survey Questions ment process must be closely
• Too much process: the effort
Overall monitored to ensure that any
to support the process is
enhancements are in fact adding
Is your organization getting the outweighing its benefits
value. The core team should
utmost value from its initiatives?
What percentage of them are • Too little process: insufficient therefore create a set of initiative
successful? collection and/or organization management process metrics.
of information These measures should mirror
Idea identification/collection the four initiative management
• A lack of participation: key
Are the goals of each idea process steps, and might include:
participants are circumventing
defined before the idea is
formally considered?
the process • Number of new ideas
identified; percentage of ideas
Evaluation/prioritization • Inadequate support tools: either
collected that get sponsored
you lack the tools to properly
How well planned are initiatives (Idea identification/collection)
support tasks (portfolio analysis,
before they are implemented? idea collection, prioritization), • Number of proposals developed;
Do people understand the
or they are difficult to manage estimated impact of prioritized
organization’s ability to support
each initiative? initiatives on strategy
• The wrong people: you’re not
(Evaluation/prioritization)
Project management/portfolio involving decision makers
management • Percentage of initiative plans
Planning the New Process reviewed; percentage of current
Are resources appropriately
Once the diagnosis is completed, initiatives with an approved
allocated to support initiatives?
How effective is your organization’s you can focus on planning the plan (Planning/approval)
initiative and project tracking future state of your initiative • Percentage of on-track initiatives;
process? management. First, enumerate all aggregate value attained from
the areas needing improvement initiatives within a portfolio
or redesign. Then, assemble a (Project management/portfolio
flaws within each step and answer
core team of stakeholders (people management)
several important questions: Do
who rely on the process) to plan
the problems occur consistently Such measures will provide
its redesign. Their input is critical
in the same step everywhere in reliable feedback on the value
in eliciting organizational support
the organization? Which parts of the new initiative management
for a revised process. Without it,
of the process are strong, and process. If trouble arises within
business leaders will inevitably
which ones need to be refined the process, the problem can be
bypass the process and continue
or redesigned? Where does quickly pinpointed and addressed.
doing things the same old way.
the process break down or not
connect well with other inter- For example, a multinational bank Back It with Facts
dependent business processes? we know built a core team that
As with any process redesign, it is
included managers from the busi-
Recently, a large life sciences essential to first build a strong case
ness lines as well as such func-
company we work with experi- for change and to enlist the support
tional areas as finance, IT, and
enced implementation problems of key stakeholders. An assessment
HR. Despite some members’ initial
with its initiatives. After performing is the most objective, evidence-
skepticism, the very act of being
an initiative management assess- based means of building the case
appointed to the core team forced
ment, it discovered that initiative for change because it identifies
them to have an investment in
ideas were being driven exclusively specific problem areas and gives
its success. That the organization
from the top. In addition, business senior managers concrete informa-
saw fit to appoint a core team
line and functional managers felt tion with which to tackle the prob-
demonstrated its desire to solve
disconnected, not just from the lem. An initiative management
the problems. By the end of the
idea development, prioritization, assessment will lead to a more
redesign, the core team was excited
and planning processes, but also focused improvement effort, and
about the new initiative manage-
from the implementation stage. one conducted by the right people:
ment process. Members transitioned
In response, the company created those with the most expertise,
into their new role as members of
a mechanism for capturing these knowledge, and influence. 
the initiative management advisory
managers’ input on the opera-
team, which reviewed initiatives on Reprint #B0801C
tional aspects of implementation
an ongoing basis to make recom-
in the program management step.
mendations to senior management.
10
January–February 2008

HR at the Heart of
C A P I TA L
capital strategy, spearheaded by
Jack Mollen, who joined the com-
Strategic Transformation: pany in September 1999 as senior
vice president of human resources.
The EMC Turnaround Under Mollen’s leadership, the
company took a number of ambi-
By Anne Field, Contributing Writer tious steps, among them hiring a
H U M A N

The dot-com crash hit computer storage device- core of new upper-level managers
who helped bring in people
maker EMC Corporation hard. But a radical new
with the skills needed to make
strategy—enabled by a revamped human capital the company’s strategy work,
strategy that included strategic job readiness— revamping the training process,
turned the company around. Jack Mollen, head and establishing reward systems
of HR, spoke to BSR about the remarkable role that aligned the new collaborative
Jack Mollen his team played in EMC’s dramatic turnaround. culture with compensation.
A decade ago, EMC, the of 90%) would come from hard- BSR recently talked to Mollen,
Hopkinton, Mass.–based supplier ware. The rest would be generat- who is today executive vice
of data storage systems, had ed from software and services— president, about how he helped
become one of the biggest success 30% and 20%, respectively. By the create and implement an HR
stories in high tech. In 1990, the early 2000s, EMC made software, strategy that enabled EMC to
11-year-old company introduced which had been chiefly a propri- successfully execute its strategic
its ground-breaking high-end etary component of its hardware transformation—and already
information storage device, EMC business, into a separate division, achieve a number of new goals.
Symmetrix, which helped fuel a and started selling new open BSR: Because EMC’s new strategy
meteoric rise in revenues and software products, enabled by a was so different from the old one,
stock price. With a more than series of software acquisitions. you must have needed people with
80,000% increase in stock price EMC also expanded its customer dramatically different skill sets.
from 1989 to 1999, EMC earned service operation into a full- How did you go about getting
the distinction of having the high- blown global professional services them?
est single-decade performance unit. In the process, the company
of any stock in NYSE history. reorganized itself along product, Mollen: Maintaining, finding, and
rather than functional, lines. putting the right talent in place
Then came the dot-com crash. are critical for driving strategy.
Because products had to be
Customers cancelled orders, and And when your strategy requires
designed with a common archi-
revenues plummeted from $7.1 that you go into new and adjacent
tecture, EMC took steps to ensure
billion in 2001 to $5.4 billion markets, you have to acquire
that the company and its people
in 2002. Determined to stage a talent in those new areas to accel-
were aligned and segmented to
comeback, EMC responded by erate change. With that in mind,
work collaboratively, not in the
overhauling its company strategy there were two approaches we
traditional siloed way. By 2003,
to adjust to the changing business could have taken. We could have
with the strategy firmly in place,
environment. Senior managers come up with our entire strategy
EMC stepped up its series of
devised a radical new strategy: and then hired the people to
strategic acquisitions—more than
transform the company from execute it. Or, we could have
30 over a three-year period.
being a hardware-only to a hard- tried to develop a broad strategy,
ware, software, and computer- Since then, results have only hire subject matter experts to help
services provider. In just four improved. For 17 consecutive refine it, and then execute against
years, they succeeded in turning quarters, EMC has enjoyed double- it. We did the latter. We figured
EMC into a nearly $13 billion, digit revenue growth. Most recently, we’d never evolve into the com-
36,000-employee giant. It was net income for Q3 2007 reached pany we aimed to be unless we
one of the most dramatic reversals nearly $493 million, compared with had real domain experts to fine-
in recent corporate history. almost $284 million for the prior tune the plan. So, we brought
year. Revenues for 2007 are on in additional talent in the areas
The three-stage strategy involved
track to reach $13 billion. of software and services leader-
a methodical approach to stabi-
lization, renewal, and growth. Critical to making the transforma- ship, talent we didn’t have in the
About 50% of revenues (instead tion work was EMC’s human company—senior-level individuals
who could quickly help us further

11
Balanced Scorecard Report

formulate and implement our It’s a process we still use today. ants. This program continues
strategy. today and takes place twice a
We also had to eliminate some
year for two to three days.
Those leaders were also instru- positions to make room for others.
mental in building talent across That was even true in HR. For In addition, we introduced a
our organization. They helped example, we did not have many core education and development
us determine the skills we needed recruiters with a background in curriculum that is mandatory for
in a workforce and helped us software, so we had to let some all employees. The curriculum,
recruit the best people. For exam- people go to enable us to hire which consists of a series of
ple, we started with two or three others who were experts in half- to one-day courses and
software leaders, and in a matter that area. programs, is structured along
of months had more than quadru- five levels, each of which aligns
BSR: What did you do about
pled that number. Acquiring this with an employee’s role within
training?
talent required an investment, the company—for example,
of course. It always costs money Mollen: We came to see that individual contributor, manager,
to attract senior talent. But you we needed to put more emphasis and so on. Some of the classes
have to be very strong in your on training. It especially hit us are mandatory, others are not.
belief that if you need to bring as we started to introduce more Required courses revolve around
in a new skill set, you do what and more new products and the skills needed to be effective
technologies into in the organization—such topics
EMC’s product as time management and how to
We needed to put more emphasis on portfolio and communicate effectively and be
training. It especially hit us as we started expand the effective within a global environ-
business. ment, with an emphasis on inter-
to introduce more new products and
nal change management.
technologies into EMC’s product portfolio For starters,
we focused on We also had training needs
and expand the business. creating a culture related to organizational, not just
of learning, individual, learning. For example
where employees understand the in the 1990s, we primarily sold
it takes to find it—especially
importance of continual develop- our products to customers at
given the speed of change in
ment and growth—something the enterprise level with a very
high technology.
that’s important in a fast-moving strong direct salesforce. When we
BSR: Can you tell us more about marketplace. Early on, we com- decided to move down-market,
the methodology you followed in municated the company strategy we knew we needed to broaden
your efforts to pinpoint the skills to employees across the organiza- our go-to-market strategy. To that
EMC needed? tion and discussed with them the end, we built our partner program,
need for new skills to help the teaming up with systems integra-
Mollen: At the time we were
company adapt to this strategy. tors and value-added resellers
organized around functions.
They had to think about where to sell to and service customers.
The heads of those areas, along
they fit in and how they could To make these relationships work,
with my head of executive
continue to add value. however, we needed a partner
staffing and myself, were tasked
training program, as well as
with determining how we’d go Managers especially had to
internal systems (such as how to
about the process and make it develop new skills. Remember,
order parts or send out invoices)
happen. Our President, Chairman we’d had people reporting to
that would make it easy for our
and CEO, Joe Tucci, was also the CEO according to functional
partners to do business with
very involved. We first discussed lines. Now, we were divided
EMC. So we implemented both.
the organizational setup we along product lines, but we
needed to make our strategy had many people who didn’t BSR: How did you help line
work, then what individuals we understand a P&L and who managers with their new roles?
had in place, whether they had lacked the financial, marketing,
Mollen: We played a key part,
the skills we required, and what or management skills needed to
helping them to understand
skills we would have to get from run a product-line organization.
what their evolving roles should
the outside. After that, we priori- We put our top 300 managers
be and facilitating discussions.
tized our needs, knowing that it through an executive develop-
If you’re going to create and
takes about 90 to 120 days in our ment program that we designed
head a product-line organization,
business to acquire senior people. with outside management consult-

12
January–February 2008

then you really need to think appraisals, compensation, and priorities and align the organiza-
about what your true value to equity for any shared direct tion and its talent. We approached
the customer is, what your full reports. This would ensure that the dismissals in such a way
potential in the marketplace is, managers reach mutual agreement that people would want to come
how you should expand, what on what is best for the employees back to EMC as the economy
capabilities you have in the they have in common. rebounded. We made sure to
organization that will help you provide an adequate severance
In addition, we rotated top man-
accomplish that, and which ones and benefits package and career
agers’ responsibilities to broaden
will come from outside. We transition support. When new
their operational command of
would sit with line managers and opportunities at the company
the business, sometimes moving
senior leaders of a product line started to emerge, some of the
some executive vice presidents
to ensure that we were all clear employees who were dismissed
into different functions. For
about our strategy. We also intro- rejoined the company.
example, the head of mergers and
duced a talent review process.
acquisitions could be appointed When you look back on what
Managers would come in and
head of marketing. The finance EMC has accomplished in its
talk about their organization to
chief could move to head up transformation—going from a
their supervisors. They would
sales. In other instances, someone functional organization to a prod-
discuss EMC’s growth strategy,
in, say, finance might stay in uct organization, from requiring
their own organizational strategy,
that organization, but move to functional capabilities to broader
and what they thought the
different business units. They management capabilities, from
company wanted them to focus
take over the job completely, with a command-and-control environ-
on in the coming year. Based
full accountability, typically for ment to a matrix environment,
on those elements, they would
two to three years. This helps from a single product line to
reach conclusions on how they
give them the broadest possible multiple product lines—not many
should organize for success—
view and understanding of EMC’s companies have pulled off one
what changes they needed to
business and the different markets of those changes, let alone all of
make, what skills were essential,
we serve. them at once. But we succeeded,
and what skills individuals within
and I am proud that HR played
the team had. We achieved great BSR: How did you handle layoffs?
a key role in that success. 
alignment this way across the
Mollen: Following the dot-com
organization. Reprint #B0801D
bust, we had to release approxi-
BSR: The move from silos to mately a quarter of our global
collaboration is a tough change. workforce to rebalance business
How did HR help advance it?
Mollen: First, there’s the question
of how we set employees’ goals.
We have a quarterly goal-setting
process, with certain goals that
Announcing Three New BSR Readers
have to be met for employees to
be compensated. The reward for
achieving these goals is based not
only on what an employee does, Setting Measures and Targets
but on how they go about doing that Drive Performance
it, and we encouraged employees
to focus on collaborating with Managing Innovation
coworkers in certain areas. The Strategy-Focused IT
We also went from a traditional Organization
chain-of-command management
approach to a cross-functional,
matrix management structure.
We realized that for this matrix
Visit www.harvardbusinessonline.org for details and to
structure to be successful, super-
visors needed to collaborate learn about all 13 BSR Reader collections.
on quarterly goals, performance

13
Balanced Scorecard Report

Why the BSC Is Just


M A N A G E M E N T
DDK, part of the nationwide
Delta Dental Plans Association,
as Effective for Small and is a 90-employee, $172 million
revenue nonprofit serving
Medium-Sized Firms 800,000 enrollees.

By Mario A. Bognanno, Vice President, Palladium Group, Inc., In early 2004, the Anchorage-
with reporting by Anne Field, Contributing Writer based Alaska Native Tribal Health
Consortium (ANTHC), a $350
Is the Balanced Scorecard just for large organizations? Surely million medical center network,
not. Besides the countless documented BSC successes among was struggling with implementing
P E R F O R M A N C E

small and medium-sized businesses (SMBs), some 20% of its first five-year strategic plan,
BSC Hall of Fame members are SMBs. Still, some SMBs have which it instituted in 2000.
the impression that the BSC is not for them. The author, who ANTHC’s legacy of having been
has guided dozens of SMBs in successful scorecard imple- part of a federal agency contributed
mentations, debunks the most common myths underlying to the problem. “The strategy
this perception. map was pivotal in helping us
shift from a federal mentality to
The real question isn’t whether Every organization has—and a private-sector perspective with
the BSC is manageable or even needs—a strategy. Strategy defines a much longer-term focus,” says
suitable for SMBs. A tool that sup- the value the organization will Tom Lefebvre, director of strategic
ports sound management is valu- provide shareholders, the cus- planning. Over the last three
able for any and all organizations, tomers it wants to serve, the mar- years, he adds, the BSC “has
regardless of size. But some kets it will operate in, the products/ provided a framework that has
SMBs believe a system like the services it will offer, and how created absolute clarity of our
BSC is too complex for them and it will differentiate itself from strategy and ultimate vision.”
requires resources beyond their competitors. Frequently, an SMB’s Besides aligning employees to
strategy is implic- strategy, the BSC has helped
it. Building a ANTHC’s board of directors work
“The strategy map was pivotal in helping BSC makes strat- with leaders and has helped the
us shift from a federal mentality to a egy explicit. By organization “engage our key
depicting themes partners”—including 38 tribal
private-sector perspective with a much and objectives healthcare providers—“and align
longer-term focus.” within the four- their strategies and needs with
Tom Lefebvre, perspective ours.” That clarity has paid off
Director of Strategic Planning, ANTHC
architecture of handsomely. Besides a healthier
the BSC, any cash flow and an 80% drop in
reach. Putting aside the complexity company, large or small, can test nursing turnover, ANTHC has
some organizations needlessly its basic cause-and-effect assump- deployed the world’s largest
introduce by either overengi- tions about the strategy’s ability to telemedicine system, serving
neering the BSC or by viewing create future value. The BSC can more than 260 sites, and achieved
it as an end rather than a means reveal flaws in the strategic hypoth- hospital “magnet” status—a quality
to strategy management, we esis—what’s working, what’s not— of care ranking achieved by only
see that SMBs have as much enabling leaders to address them 6% of hospitals in the U.S.1
to gain with the BSC as large squarely, and earlier in the game.
About eight years ago, MECO, a
organizations. And often their size
In addition, the BSC can help 200-employee manufacturer of
gives them an implementation
articulate and communicate strategy water purification equipment,
advantage.
throughout the organization, adopted the BSC to help it run
Myth #1: SMBs do not need keeping employees focused on a better business. “As a small
strategy; they are transaction- what’s strategically relevant. “I company, we were spread too
al. The argument goes: “Who have limited resources, so it’s very thin, trying to service too many
needs a multiyear plan? We important that everybody in the people with limited resources,”
know our business, customers, company is on the same page says CEO George Gsell. “We were
and capabilities. We can react to and focused on the right direc- drowning in a sea of opportuni-
market changes and needs as tion,” says CEO Linda Brantner of ties, and not doing a great job at
they arise.” Delta Dental of Kansas (DDK), a any of them. We needed some
2006 BSC Hall of Fame winner. focus.” The BSC allowed MECO

14
November–December 2007

to craft a new strategy focusing prolific writings of BSC creators key leaders handle design and
on growth industries. Doing so Drs. Kaplan and Norton as evi- implementation. And design team
helped the company multiply dence that the BSC is “academic,” members at SMBs typically wear
its product line and boost the we reiterate: far from being many hats. Besides making strate-
average order size substantially. theoretical, their work is based gic decisions, top leaders may
Since 2001, revenues have jumped on empirical evidence. They have also be the subject matter experts
from $25 million to $60 million. studied and identified the practices in their organization. At smaller,
of successful
The strategy-mindedness and
organizations,
agility gained through years of
and organized The strategy review meeting, integral to
successful BSC use also proved to
and codified
be a matter of organizational life a BSC-based strategy management program,
them into princi-
or death for MECO. Originally
ples that can doesn’t represent a new time commitment. It’s
based in New Orleans, the com-
benefit all man- simply a new approach to existing meetings.
pany saw its only manufacturing
agers. And while
plant destroyed in Hurricane
the underlying
Katrina, and about 80% of its
principles are
employees’ homes were flooded.
not novel, the BSC represents single-site organizations, meeting
Gsell and four senior executives
an innovative integration of logistics are simpler. It’s easier to
met at his mother-in-law’s house
these principles that can help coordinate fewer people. Design
to craft a near-term crisis manage-
companies meet the demands time frames are thus usually
ment strategy map whose key
of an ever-changing business shorter—an average of six weeks
themes included taking care of
environment. for SMBs versus 10 weeks for
employees, keeping operations
large organizations.
going, finding a new plant, and Rather than inject complexity
replacing lost workers. In less into performance management, A multimillion-dollar IT system
than a year, MECO was operating the BSC actually simplifies it. In is not essential for administering
at its new Houston location. Only snapshot fashion, the strategy a BSC program. While specialized
3 of 50 projects were cancelled, map communicates strategy in performance measurement soft-
and several customers placed a way that all employees can ware is a plus, a spreadsheet or
additional orders. understand, thus facilitating buy- PowerPoint can do the job. Only
in and fostering common purpose. when reporting begins to interfere
Myth #2: The BSC is too
By clarifying strategy and its with analysis is a system solution
academic and complex an
underpinnings, the BSC forces necessary. Generally, as much as
approach for the SMB. “We are
companies to stick to what’s 60% of measures are already
pragmatic. We need something
strategically vital; eliminating, being tracked in existing systems
simple and straightforward.”
for example, initiatives that do (e.g., financial, sales, customer
The BSC may be based on not advance strategy. Complexity service), and measure owners are
management models, but all of is actually more of an issue for likely already collecting and ana-
them are based on successful large organizations, which have lyzing the data as part of their
managerial practice: systems more organizational units, more current duties. The task of gather-
theory, which underlies the cause- business activities, and more ing and disseminating BSC data
and-effect model of the strategy people, all of which interact and can fall upon an existing employee
map; the scientific method of must be coordinated. or employees, obviating the need
hypothesis testing, by which for additional staff.
Myth #3: The BSC costs too
BSC assumptions are monitored;
much to design and adminis- The strategy review meeting,
learning theory and behavior
ter. “We must wear many hats. integral to a BSC-based strategy
modification, which play a role
We do not have the luxury of management program, is essential
in the strategy review process
time, people, or resources to for organizations of any size. But
where expectations are set,
devote to a long, iterative design it doesn’t represent a new time
feedback is provided, and conse-
process—or a costly reporting commitment for leaders. It’s sim-
quences are linked to perform-
process.” ply a new approach to existing
ance; and strategic double-loop
meetings, in which strategy is
learning, the basis for revising SMBs can expedite BSC design
the focus, problem-solving the
all the elements of the overall and adjust the reporting and
approach, and action-planning
strategy management process. review process to match their
the outcome.
limited resources. Generally,
For those who interpret the

15
Balanced Scorecard Report

MECO’s Gsell claims design and streamlining its initiatives from C O M I N G U P I N B S R


implementation “weren’t as com- some 30 “pet projects” to a hand-
plicated as people would make it ful—only those deemed truly • Part II of Strategy Development:
out to be be. We saw it as some- strategic. Formulating and Launching the
thing that would pay for itself.” Strategy—an exclusive excerpt from
ANTHC’s Tom Lefebvre acknowl- Kaplan and Norton’s forthcoming book
At DDK, the feeling was much edges that BSC design and imple- The Execution Premium
the same. In fact, CEO Brantner mentation required a lot of work,
believes organizational foot- but didn’t represent substantial • Guidelines for initiative review
and reporting
dragging following the decision additional costs. “The first year
to introduce the BSC was more was an investment of a lot of time • Author Adrian Slywotzsky on turning
costly than design or administra- and energy,” he says. The second strategic risks into growth opportunities
tive expenses. MECO’s Gsell year involved less effort, although
• Leveraging information assets and
avoided these procrastination important refinement work was technology to execute strategy: a
costs by keeping resisters off the needed. The payoff, he says, came fresh look at the technology question
BSC implementation teams. One in year three. Though ANTHC
type of cost that may hit SMBs has added a limited number of • Robert Kaplan on the foibles of
managing by stakeholder theory
harder is cultural. As Brantner staff, it mostly reorganized job
observes, SMBs are less accus- descriptions to integrate BSC • How Boston’s famed Brigham &
tomed to major organizational duties into existing staff jobs. Women’s Hospital used the BSC
changes and restructurings. The BSC has helped everyone, to unify performance data—and
DDK, she says, “incurred costs “from people in support positions achieve breakthrough results
associated with personnel turn- to the senior leadership team,
over, productivity, and manage- prioritize their work because
ment issues.” Such costs can it has made priorities clear,”
As CEOs Gsell and Brantner
accompany any major change Lefebvre says. With activities and
observe, fewer layers of manage-
initiative; ultimately, the benefits initiatives aligned, the BSC “has
ment give small companies a
should outweigh them, as they made us work more efficiently
distinct advantage in designing
did for DDK. because our framework is more
and introducing the BSC and
efficient.”
Brantner notes that DDK has making it part of the culture.
incurred consulting costs (among Myth #4: The BSC involves Often, decisions can be made in
them, for gap analysis and strategy too much bureaucracy. “We a day or two.
map refinement), costs that have need an approach that is flexible,
In addition, the faster that change
become part of the company’s that lets us stay nimble and
occurs in a company’s environ-
budget. At the same time, DDK competitive.”
ment, the more robust the per-
has cut costs elsewhere, thanks to
formance feedback process must
be. According to the report of a
Coming Soon Balanced Scorecard Collaborative
working group of companies
The Balanced Scorecard active in e-commerce, the contin-
ual feedback the BSC provides is
Hall of Fame Report 2008 “an excellent way to keep their
compan[ies] on track.”2 The report
Don’t miss the latest edition of the Balanced noted that as a real-time manage-
Scorecard Hall of Fame Report, due out in March. ment system, the BSC supports the
shorter decision-to-implementation
The 2008 Report highlights the breakthrough
cycle typical of SMBs—and enables
achievements and Strategy-Focused Organization
them to react faster, even anticipate
best practices of the 16 members of the Hall of Fame class the need to adjust to changing
of 2007—a roster that includes Statoil, Canadian Blood Services, conditions. 
Infosys, Lockheed Martin Enterprise Information Systems, 1. “Magnet” status is conferred by the American
Nurses Credentialing Center and recognizes health-
and Nippon Boehringer Ingelheim. care organizations for nursing excellence.

2. See Ted Jackson and John Baskey, “How to


Previous Hall of Fame Reports—published since 2004—are available at Use Balanced Scorecards to Implement E-Strategy,”
BSR November–December 2000 (Reprint #B0011F).
Product #B08010

http://sfo.harvardbusinessonline.org.
Reprint #B0801E

16 To subscribe to Balanced Scorecard Report, call 800.668.6705. Outside the U.S., call 617.783.7474. bsr.harvardbusinessonline.org