We will see how two very different organizations—DuPont Engineering Polymers and the Royal Canadian Mounted Police—took their existing structures as given in the belief that tinkering and realigning authority, responsibility, and decision rights would not produce the magic needed to achieve corporate-level synergies.
Essential Steps to a Successful Strategy Implementation Process
Instead, executives in these two organizations used the tools of the balanced scorecard strategy management system to guide the decentralized units in their search for local gain even as they identified ways for them to contribute to corporatewide objectives. A management system can be defined as the set of processes and practices used to align and control an organization. Management systems include the procedures for planning strategy and operations, for setting capital and operating budgets, for measuring and rewarding performance, and for reporting progress and conducting meetings.
It is fair to say that, historically, most companies have relied entirely on financial systems—usually centered on the budget—for these various processes and practices. But relying on the budget as the primary management system caused short-term financial considerations to overwhelm longer-term strategic goals. In the s and s, many companies introduced total quality management as a new management system.
But while TQM enabled firms to focus more effectively on process improvements, the ability to implement strategy across organizational units remained elusive. In our experience, a management system based on the balanced scorecard framework is the best way to align strategy and structure. A balanced scorecard—based system, therefore, provides both a template and a common language for assembling and communicating information about value creation.
Most of our writings have centered on implementing strategies for business units, with their unique customers, competitors, technologies, and workforces.
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More recently, corporations have applied the framework to their corporate-level strategy to describe how the headquarters creates value beyond what its individual business and support units generate on their own. Even diversified holding companies can create enterprise-level value by instituting effective processes for resource allocation, for corporate governance, for acquiring and integrating new business units, and for conducting negotiations with external entities such as governments, unions, capital providers, and suppliers. It is precisely by doing these things well that companies create financial synergies.
Enterprises with holdings as diverse as those that make up Kohlberg Kravis Roberts and General Electric add value through savvy acquisitions supported by robust governance processes.
Corporate synergies can also be generated by leveraging relationships across multiple business units to offer common customers lower prices, greater convenience, or solutions more complete than specialized competitors can provide. For example, Media General implemented an effective convergence strategy by sharing editorial processes and advertising content among its regional television stations, newspapers, and interactive online media properties.
This cross-unit integration created a unique value proposition for the common customers—advertisers and subscribers—that was better than any single property could offer on its own.
Customer synergies also arise when retail companies like hotel chains, consumer banks, or quick-service restaurants consistently deliver the same value proposition across a geographically dispersed network of retail outlets. The third balanced scorecard perspective describes corporate synergies gained when multiple business units reap savings by sharing common processes, such as purchasing, manufacturing, distribution, and research. More than a century ago, Standard Oil created a dominant advantage through the scale economies of its large refineries and distribution system.
Today, megabanks like Citigroup and Bank of America create scale economies by integrating and consolidating the back-office operations and computer systems of the financial institutions they acquire. Companies can also capture process economies of scope by exploiting core competencies in specific technologies—such as optics, miniaturization, or displays—across multiple business units.
For example, Canon incorporates its world-class optics capabilities into products as diverse as cameras, binoculars, copiers, medical-imaging devices, and semiconductor photolithography equipment.
The final perspective enables corporations to exploit their scope to create enterprise-level value from activities related to human capital development including recruiting, training, and leadership development activities and to knowledge management such as IT-based systems for capturing, storing, and communicating knowledge and best practices throughout diverse organizational units.
By focusing on the career development opportunities available in its far-flung product and geographic units, for example, GE has created a formidable and hugely valuable cadre of managers at all levels. Implementing a corporate strategy system based on the balanced scorecard is not as simple as just requiring managers in all business and support units to create individual local scorecards and then somehow adding them all together.
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Nor should a corporate scorecard simply be replicated down the organization without considering the different operating realities of each unit. Headquarters aligns corporate and business-unit strategies by first articulating its theory of synergy and then encouraging the business units to develop strategies that contribute to those enterprise-level objectives while simultaneously addressing their local competitive situation. It is here that the bulk of the companywide systems currently used for measuring performance and allocating responsibilities fail.
Most such systems—take the budgeting system, for instance—emphasize locally controllable measures and actions. But this emphasis encourages business units and functions to become silos that perform well on their local measures but fail to contribute to divisional and corporate synergies.
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In this way, managers in each unit have clear measures and targets that tie their own activities to the enterprise value proposition. Several organizations have adopted a particularly effective way to communicate corporate priorities to business and supports units. They identify three to five strategic themes to describe the enterprise value proposition.
Each theme consists of a vertical chain of cause-and-effect relationships linking objectives, measures, and initiatives that span the four balanced scorecard perspectives.
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Local managers use the themes to link their local strategies and determine the cross-unit collaboration required to deliver on this value proposition. To see the power of a strategic theme, consider a large financial services company whose value proposition is to offer a full range of affordable products and services to the mass market. It might break down that proposition into three distinct strategic themes: Lower the cost of serving existing customers, acquire profitable new customers, and deepen relationships with customers by cross-selling them additional products and services.
Each objective and measure in the theme is supported by one or more strategic initiatives.
The complete portfolio of strategic initiatives defines the resources and actions required to implement the strategic theme. A strategic theme groups together different corporate-level objectives, measures, and initiatives across the various perspectives of the balanced scorecard framework. The first column shows for each perspective how the value-creating objectives are linked to the theme. The final column lists specific cross-unit or cross-functional projects aimed at realizing synergies for each perspective and the dollars budgeted for them.
To do so, the company follows several implementation steps. First, through the strategic themes on its corporate-level strategy map, top executives articulate the theory for corporate advantage—how the whole is more valuable than the sum of the parts. Second, they assign a senior executive to be responsible for each strategic theme. Typically, this executive also has another line or staff position, since being a theme owner is a part-time job. They convene periodic meetings, drawing on individuals from all the affected business units, to review progress and initiatives and revise action plans related to theme objectives.
And they oversee data reporting and use the data to hold fact-based discussions with business unit managers about how well they are supporting the theme. In this way, all business units are held accountable not only for their local performance but also for their contribution to corporate-level strategic priorities.
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Third, the executive team identifies the strategic initiatives typically those that span business-unit boundaries that support each theme and authorizes the resources—money and people—required to implement each initiative. After all, corporate strategies and strategic themes are just hypotheses about value creation. By translating the hypotheses of a strategic theme into linked objectives and measures, executives can test the strategy and determine whether the causal connections really exist.
If not, the corporate executives can and should revise the themes intended to create corporate synergy. A balanced scorecard—based system for setting strategy and measuring performance linked together by specific strategic themes gives executives at corporate headquarters a way to communicate shared priorities and motivate people to share them in even the most complex businesses. In effect, the themes describe a virtual organization in which decentralized units pursue their local strategies while simultaneously contributing to corporate priorities.
EP, like many multinational and multiproduct organizations, was having trouble implementing a coherent strategy across its eight global product businesses, three regions, and six shared service units. Specifically EP would:. The sequence of themes corresponded to the time frames required for successful implementation: Improving operating processes and logistics would deliver results in the near term nine to 15 months. It would take two to three years to create new portfolios of products that could provide more complete customer solutions.
Realizing the benefits of developing and installing an entirely new business model to reach new customers would take three to four years. DuPont EP viewed the five themes as the DNA of its strategy, the code that would be embedded in every business unit and shared service unit.
It then cascaded the high-level strategic themes down the organization. Each major geographic region and product unit built its own scorecard, which highlighted its unique objectives and initiatives for local strategy but also made clear how it would implement the five themes locally. This approach made opportunities for synergy across business units far more visible. For instance, the financial objective for the theme of operational excellence is to minimize operating costs, which will require optimizing asset utilization at the process level, which in turn requires integration with a new sales model, described in the learning and growth perspective.
EP, however, faced a classic conflict. The local units and their employees wanted to focus on running their businesses efficiently day-to-day. In the course of the workshop, the plastics manufacturer expressed frustration with its own product design processes, particularly the long time required to fix problems detected in early prototypes. The manufacturer felt that EP would do a better job because DuPont had a more holistic understanding of plastic materials and their manufacture.
This initiative was a clear success for the theme of building complete solutions for customers. An often fatal weakness of a matrix organization is the endless debates among business units, functional departments, and geographical regions about resource allocation. An important component of the SPFS is the analysis of socio-economic constraints — through a systematic participative approach. In the extension of its preliminary phases, the SPFS will further address macro-level constraints, thereby creating an environment favourable to expanded agricultural production and trade.
On the technological side, three components of the SPFS will pursue innovations in farming technology and support for upstream and downstream services: 1 water management; 2 the sustainable intensification of crop production systems; and 3 the diversification of production systems into short cycle animals, artisanal fisheries, aquaculture and tree crops.
In the pursuit of integrated management practices, they seek to reduce negative environmental effects and maximize environmental benefits.