Different organizations face different issues, and any one-shoe-fitsall
solution is suspect. However, Cedar’s experience with
companies as diverse as Goodlass Nerolac and Onida, Taj Hotels
and the BPL Group reveals a certain pattern. Sanjiv Anand explains
why companies find it difficult to implement strategies, and
identifies the key challenges. Check out his seventeen parameters
for yourself to find out how you are doing.
Why do organizations have difficulty implementing well-formulated strategies? The quick answer is because strategies have changed but organizational structures have not. In the Indian scenario and through our work with Indian clients, we find that managers face seventeen key challenges.
Strategies are changing but the tools to manage them have not kept pace. In the industrial economy, companies created value using their tangible assets to transform raw material into finished products.
Over the course of the years, the ratio had dropped to 38%; further plummeting to under 15% in the last decade.
Opportunities to create value are shifting from managing tangible assets to managing knowledge based strategies using intangible assets: customer relationships, high quality and responsive operating processes, innovative products and services, information technology and databases, skills and motivation and employee capabilities.
- In an economy dominated by tangible assets, financial measures were adequate to record investments in inventory, plant property and equipment on the company’s balance sheets.
- Income statements could capture the expenses used by tangible assets to produce revenue and profits.
- But when intangible assets became major sources of competitive advantage, we need different tools.
Many companies operate under central control through large functional departments.
Strategy development by top management and implementation through a centralized command-and-control culture. This system was fine in the 19th and early 20th centuries when change was incremental, so managers could use slow-reacting and tactical management control systems such as the budget. These are inadequate for today’s dynamic environment. The competition is today’s organizations, which operate through decentralized business units and teams that are much closer to employees thatn large corporate staff.
Speed and Language
Rapid changes in technology, competition and regulations means that strategy formulation and implementation has to be a continual and participative process in an organization.
Organizations today need language for communicating strategy and identifying processes and systems that help implement it and to gain feedback. Success comes from strategy becoming everone’s everyday job.
Lag and Lead Indicators
Exclusive reliance on financial measures cause organizations to do the wrong things.
Financial measures are generally lag indicators: they report outcomes and the consiquences of past actions.
The BSC approach retains lag indicators and supplements them with measures on the drivers (lead indicators) of future financial performance.
Challenge 1: Lack of Business Planning Process
- 9 of 10 companies can’t implement strategy
- Business planning processes underdeveloped
- Takes a long time, nobody owns business plan
- Worse, budget is a minor to a major fudge
- Strategic planning guys are second class citizens.
Challenge 2: Confusion between BSC, TQM, EVA
- Role of BSC compared to TQM and EVA
- Tool vs measurement
- Integrate your BSC into your quality processes
- Determine whether you need an EVA, financial measurement or another relevant one
Challenge 3: Do you have a strategy?
- Many companies don’t have a complete strategy
- They do have a financial and customer startegy but little else
- Lots of initiatives with no timelines and ownership
- Integrate your startegic planning and BSC process
- Complete it in one quarter or less every year
Challenge 4: Who owns the process?
- Finance vs HR vs strategic planning
- Group vs division; centralization vs decentralization; everything has to be approved by the CEO
- Doesn’t recognize the challenge is in implementing the strategy
- CEOs need to empower more
Challenge 5: High percentage of family owned businesses
- 80% of corporations worldwide are family owned
- Transition from family owned to professionally managed is a challenge
- Inability of family members to get out of operations
- BSC will allow the family to better articulate their shareholders’ expectations
- BSC will allow the family to get a comprehensive view of organizational performance without having to deal with it everyday
Challenge 6: Scared to be measured
- Measurement in our part of the world often scares, doesn’t motivate
- Less information is better
- Annual performance review is in any case not linked to quanitfiable performance, so why bother
- BSC will clearly define ownership at enterprise level
- The individual performance management system can be made more effective as it is aligned to enterprise performance
Challenge 7: Unwilling to spend
- Advertising spend effectiveness is not quantifiable but that’s ok
- We all want to be strategy focused organizations
- Initiative expenditure is ok, but strategy deployment is not
- Spend it. Payback is immediate
Challenge 8: Selection of the wrong scorecard coordinator and lack of resources
- Must be credible
- Must be senior, must have a comprehensive view of the organization
- Strong analytics
- Assign a team
Challenge 9: Underdeveloped MIS, data availability, organization charts
- Lack of historic performance data
- Updated organization charts are missing
- Unwilling to do the hard work to get the data
- Don’t worry about 99.9% accuracy
- If you can’t get enough information for the BSC, you are in trouble in any case
Challenge 10: Unwilling to speak up and intelligently
- Sharing views openly in a meeting is risky
- Easy to say “it won’t”
- Worried more about the exception than the rule
Challenge 11: Too many measures
- Looking for the perfect measure. It doesn’t exist
- 35-45 measures are chosen. Often it is too many
- Can’t get agree on a sub-set of 20-25
- Confused on frequency and unit of measurement
Challenge 12: It’s raining projects
- Too many projects
- Ownership and value is suspect
- Value to business is even more suspect
- No inventory of projects exist
Challenge 13: Lack of sustained CEO commitment
- What’s important for the boss is important for me
- He’s moved on to a new toy
- He says the wrong things
- He doesn’t act on lack of performance
- He tampers with the BSC to hide problems
- Need to formally mandate the scorecard coordinator
Challenge 14: Manual collection of data and BSC, budget numbers mismatch
- Manual collection of data on monthly basis becomes difficult
- Need to automate the BSC
- Difficulty in aligning BSC & budget numbers due to budget cycle
- They need to match
- Annual budget submission must accompany BSC
Challenge 15: Keep the meeting focused and don’t tamper with the BSC
- Even if the BSC is incomplete, start with a sub-set and keep going
- Must have the monthly meeting, even if it is on the 10th, and some members are missing
- Keep the meeting focused for 3-4 hours
- Don’t tamper with the BSC design at every meeting. Focus on actuals, projects, targets
- Annually review the BSC during the planning process
Challenge 16: Own and communicate
- Owners must own and take responsibility for both the objective and project that is important to them
- Don’t expect the scorecard coordinator to do your job
- Build a communication plan for the BSC
- Communicate themes, create events, awards; creating a climate for action
Challenge 17: Stick with it
For successful implementation of the BSC, don’t treat it as another project. Only then will it help you implement your strategy knowledgably, measurably and rapidly