blog dds: 2008-11-10 — Robert Kaplan on Strategy Execution

Today I attended a presentation by Robert S. Kaplan, a Professor of Leadership Development at the Harvard Business School, on using strategy maps and balanced scorecards in a strategy execution system. Dr. Kaplan managed to distill 15 years of research and its application by the world's leading companies into a fascinating 90 minute talk. These are my notes.

Dr. Kaplan is a professor of accounting, so he started his talk by showing us the balance sheets of two (initally anonymous) companies whose key assets (people and platform) didn't appear in them. The companies turned out to be Infosys and Microsoft. The key insight behind the balanced scorecard is that in modern companies most important assets are intangible, i.e. they can't appear in their balance sheets. If you can measure something, then you can improve it. Hence the balanced scorecard allows us to measure all aspects of a company's performance. These are the following.

Financial Perspective
Customer Perspective
Process Perspective
Learning and Growth

For non-profit organizations the above measures change into the following.

Mission (Customer) Perspective
Support Perspective
Process Perspective
Learning and Growth
Financial Perspective

It turns out that the execution of strategy (phrased as excellence in execution) and consistent execution are the #1 and #3 key issues identified in a study of top CEOs.

Initially, the balanced scorecard was an operation performance system, but over the years it has been transformed into a strategy execution system with the following elements.

Mobilize change through executive leadership
Translate strategy on operational terms
Align the organization to the strategy
Motivate to make strategy everyone's job
Govern to make strategy a continual process

Leadership is thinking about change. If a leader isn't thinking about change, then he's not a leader, but an administrator or bureaucrat. Examples of change are moving

from selling products to selling solutions,
from transactions to relationships, and
from silos to integrated business and functional units.

The strategy must be articulated in 50 words or less with the following characteristics.

Clear purpose (measurable)
Statement of advantage (value proposition)
Scope (target audience)

Example (Southwest Airlines)

Strategy:

"To be the most profitable US-based airline by offering the speed of airline travel at the price, frequency, and reliability of cars, buses and trains to price-sensitive travelers who value convenient flights."

This thinking leads us to a strategy map that lists the following.

Objectives, such as "Reduce the time plane is on the ground between flights". These are typically the voice of the customer (hence the quotes).
Measurements (e.g. time an airplane spends on the ground)
Targets (e.g. 30 minutes from arrival to departure)
Initiatives (short-term funded action plans to achieve them). This category is called strategic spending and is the last we would want to cut in today's cost-cutting environment.

Managing the Strategy's Execution

Kaplan, mentioning that he initially studied electrical engineering at MIT, presented a closed loop feedback management system for managing the strategy's execution.

Develop strategy
Translate the strategy into a map
Align the organization
Plan operations
(Execution)
Monitor and learn
Test and adapt

A tool for linking strategy and operations management are dashboards: key performance indicators listed in a way that can be readily monitored to see the numbers important for executing the strategy. These must be handled in operational review meetings: frequent, departmental and functional meetings that seek to identify and solve operational problems while promoting continuous improvement.

There should be separate meetings (monthly) to map the progress in executing the strategy by using the balanced scorecard.

Once in a year the strategy should be "pressure-tested". Is the strategy really worth implementing? The senior management team, together with functional specialists, should use analytics to see whether the strategy is supported by the obtained results.

An office of strategy management (OSM; 1-5 people) is the process owner for strategy execution processes. The office has the following roles.