The Strategy-Focused Organization: How Balanced Scorecard Companies Thrive in the New Business Environment [Hardcover]

Robert S. Kaplan (Author), David P. Norton (Author)

Book Description

Publication Date: September 2000

The creators of the revolutionary performance management tool called the Balanced Scorecard introduce a new approach that makes strategy a continuous process owned not just by top management, but by everyone. In The Strategy-Focused Organization, Robert Kaplan and David Norton share the results of ten years of learning and research into more than 200 companies that have implemented the Balanced Scorecard. Drawing from more than twenty in-depth case studies--including Mobil, CIGNA, and AT&T Canada--Kaplan and Norton illustrate how Balanced Scorecard adopters have taken their groundbreaking tool to the next level. These organizations have used the scorecard to create an entirely new performance management framework that puts strategy at the center of key management processes and systems.

Kaplan and Norton articulate the five key principles required for building strategy-focused organizations: 1) translate the strategy into operational terms, 2) align the organization to the strategy, 3) make strategy everyone's everyday job, 4) make strategy a continual process, and 5) mobilize change through strong, effective leadership. The authors provide a detailed account of how a range of organizations in the private, public, and nonprofit sectors have deployed these principles to achieve breakthrough, sustainable performance improvements.

Editorial Reviews

Amazon.com Review

In their previous book, The Balanced Scorecard, Robert Kaplan and David Norton unveiled an innovative "performance management system" that any company could use to focus and align their executive teams, business units, human resources, information technology, and financial resources on a unified overall strategy--much as businesses have traditionally employed financial management systems to track and guide their general fiscal direction. In The Strategy-Focused Organization, Kaplan and Norton explain how companies like Mobil, CIGNA, and Chemical Retail Bank have effectively used this approach for nearly a decade, and in the process present a step-by-step implementation outline that other organizations could use to attain similar results. Their book is divided into five sections that guide readers through development of a completely individualized plan that is created with "strategy maps" (graphical representations designed to clearly communicate desired outcomes and how they are to be achieved), then infused throughout the enterprise and made an integral part of its future. In several chapters devoted to the latter, for example, the authors show how their models have linked long-term strategy with day-to-day operational and budgetary management, and detail the "double loop" process for doing so, monitoring progress, and initiating corrective actions if necessary. --Howard Rothman

Review

" . . . Kaplan and Norton show they know how to follow a good opening act [The Balanced Scorecard] without losing their own balance." -- American Way, December 2000

In this fast-moving economy of big ideas and trendy business strategies, one can sometimes lose track of what's in and what's out. If the last round of big ideas (disruptive technologies and chasm-crossings) was about finding the right product and market, this year's model is about getting it done. As companies turn again to profitability and leveraging existing resources and assets, managers are gravitating toward ideas that help them execute their strategies.

The Strategy-Focused Organization, then, comes at an auspicious moment. In a follow-up to their influential and popular 1996 book The Balanced Scorecard, Harvard Business School professor Robert Kaplan and consultant David Norton take their popular ideas about measuring success and show how to build an organization that puts those ideas to use.

Kaplan and Norton have rolled out their balanced scorecard model in hundreds of companies, including such marquee clients as Cigna, Mobil and UPS. They have built a successful consulting practice based on it and are now seeing other books crop up about using their tool.

Like many consequential management devices, the balanced scorecard is fairly straightforward. The authors argue that companies all too often focus on the wrong numbers. Managers obsess over outcomes or lagging indicators instead of harder-to-measure factors such as cycle time, customer satisfaction and levels of innovation. The solution is a more balanced scorecard, and in the first book Kaplan and Norton go into great detail on how to build one.

The underlying principles here are not new. The authors build on a tradition of process-focused quality initiatives stretching from Six Sigma and Total Quality Management all the way back to Frederick Taylor's scientific management. Kaplan and Norton, however, move the notion forward somewhat by more explicitly linking their measures to successful outcomes. Employees more easily see how increasing cycle time or reducing defects, for example, can affect financial performance and customer satisfaction.

The scorecard describes and tracks a company's given goals. Kaplan and Norton argue in their new book, though, that their approach can also help managers execute those goals by acting as a sort of corporate superego. "Measurement creates focus for the future because the measures chosen by managers communicate to the organization what is important," they write, somewhat grandly claiming that at many companies their scorecard system "replaced the budget as the center for management processes. In effect, the balanced scorecard became the operating system for a new management process."

Kaplan and Norton deliver on the subtitle's promise of showing how companies use the balanced scorecard. While at times the book reads a bit like a Harvard Business School case writ large – no surprise, given that many of the examples cited were subjects of HBS case studies by the authors – the book presents a wealth of finer points and stories about the tool in practice.

While the balanced scorecard promises great reward, it also calls for a large commitment. The authors suggest, for example, that every employee construct personalized balanced scorecards. They advocate regular, detailed communication of the numbers. Such practices can, if pursued too vigorously, channel an inordinate amount of time and energy to the process of "excellence" rather than the business of getting things done. Several quality-obsessed companies of the '90s fell prey to such habits.

Still, most companies could do far worse than overemphasize doing the right things. At a time when companies increasingly need to deliver on strategy rather than come up with the next big idea, Kaplan and Norton help pull together meaningful measures for a knowledge-based economy. A fairly simple idea, but as the authors argue, execution is everything.

---

Tom Ehrenfeld writes the Just Managing column for TheStandard.com. -- From The Industry Standard

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Product Details

• Hardcover: 416 pages
• Publisher: Harvard Business Review Press; 1 edition (September 2000)
• Language: English
• ISBN-10: 1578512506
• ISBN-13: 978-1578512508
• Product Dimensions: 9.5 x 6.4 x 1.3 inches
• Shipping Weight: 1.7 pounds (View shipping rates and policies)
• Average Customer Review: 4.5 out of 5 stars  See all reviews (26 customer reviews)
• Amazon Best Sellers Rank: #80,836 in Books (See Top 100 in Books)
  • #34 in Books > Business & Investing > Management & Leadership > Planning & Forecasting

Customer Reviews

Most Helpful Customer Reviews

125 of 128 people found the following review helpful:

5.0 out of 5 stars Extremely detailed, highly informative, dryly written, January 30, 2001

By 

Max More "Max More" (Austin, TX USA) - See all my reviews
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This review is from: The Strategy-Focused Organization: How Balanced Scorecard Companies Thrive in the New Business Environment (Hardcover)

The Strategy-Focused Organization

Building on their Balanced Scorecard approach, Kaplan and Norton have developed an impressive framework in The Strategy-Focused Organization for the implementation of strategy. They have found that 90% of strategic initiatives fail due not to formulation but to implementation difficulties. Successful implementation of strategy requires all parts of an organizations to be aligned and linked to the strategy, while strategy itself must become a continual process in which everyone is involved. The Balanced Scorecard, originally seen by the authors as a measurement tool, is now presented as a means for implementing strategy by creating alignment and focus.

Financial measures report on lagging financial indicators. The Balanced Scorecard aims to report on the drivers of future value creation. The book shows in detail how this is done from four perspectives: Financial, customer, internal business perspective, and learning and growth (these are outlined on p.77). These four perspectives produce a highly detailed framework when combined with the five principles of a strategy-focused organization: 1: Translate the strategy to operational terms. 2: Align the organization to the strategy. 3: Make strategy everyone's everyday job. 4: Make strategy a continual process. 5: Mobilize change through executive leadership.

Absorbing every detail of this book will require many hours. The sheer detail of this complex system requires considerable attention, perhaps more than some readers can muster, but clearly distinguishes this work from many books full of business fluff. The style tends to be turgid and pedantic while being admirably complete. Readers can grasp the essence of the book's central points by reading only Chapter 1 (Creating the Strategy-Focused Organization), Chapter 3 (Building Strategy Maps), and Chapter 8 (Creating Strategic Awareness). Skip quickly through the chapters in Part Two: Aligning the Organization to Create Synergies. This section is the least engaging of the five. The balanced scorecard approach to strategy will appeal to those with a systematizing frame of mind. The book is filled with complex diagrams of corporate processes consisting of interrelated boxes and forces.

This approach is extremely detailed and complex. It requires a major commitment and effort. Though the authors claim it can be implemented by smaller organizations, this will be more challenging than for large companies who can commit a team full time to working out the details.

Much of the value of the approach may lie not so much in following through on completely working out the balanced scorecard but on absorbing the lessons regarding organizational integration across silos and the importance of clarity about mission, strategy, and goals. The balanced scorecard is one way to achieve and implement this clarity but not the only way. Another would be continual reiteration of these (as in Confessions of An Extraordinary Executive). Some companies may benefit from strict use of this system, including finding units of measurement for its implementation. Others will gain much from applying the insights without such a formal and complete implementation.

67 of 67 people found the following review helpful:

5.0 out of 5 stars The Perilous "Journey" to Breakthrough Performance, July 7, 2001

By 

Robert Morris (Dallas, Texas) - See all my reviews
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This review is from: The Strategy-Focused Organization: How Balanced Scorecard Companies Thrive in the New Business Environment (Hardcover)

If you have not already read Kaplan and Norton's The Balanced Scoreboard, I presume to suggest that you do so prior to reading this book. However, this sequel is so thoughtful and well-written that it can certainly be of substantial value to decision-makers in any organization (regardless of size or nature) which is determined to "thrive in the new business environment." Research data suggest that only 5% of the workforce understand their company's strategy, that only 25% of managers have incentives linked to strategy, that 60% of organizations don't link budgets to strategy, and 85% of executive teams spend less than one hour per month discussing strategy. These and other research findings help to explain why Kaplan and Norton believe so strongly in the power of the Balanced Scorecard. As they suggest, it provides "the central organizing framework for important managerial processes such as individual and team goal setting, compensation, resource allocation, budgeting and planning, and strategic feedback and learning." After rigorous and extensive research of their own, obtained while working closely with several dozen different organizations, Kaplan and Norton observed five common principles of a Strategy-Focused Organization:

1. Translate the strategy to operational terms

2. Align the organization to the strategy

3. Make strategy everyone's job

4. Make strategy a continual process

5. Mobilize change through executive leadership

The first four principles focus on the the Balanced Scorecard tool, framework, and supporting resources; the importance of the fifth principle is self-evident. "With a Balanced Scorecard that tells the story of the strategy, we now have a reliable foundation for the design of a management system to create Strategy-Focused Organizations."

After two introductory chapters, the material is carefully organized and developed within five Parts, each of which examines in detail one of the aforementioned "common principles": Translating the Strategy to Operational Terms, Aligning the Organization to Create Synergies, Making Strategy Everyone's Job, Making Strategy a Continual Process, and finally, Mobilizing Change Through Executive Leadership. Kaplan and Norton then provide a "Frequently Asked Questions" section which some readers may wish to consult first.

There are many pitfalls to be avoided when designing, launching, and implementing the program which Kaplan and Norton present. These pitfalls include lack of senior management commitment, too few individuals involved [or including inappropriate individuals at the outset], keeping the scoreboard at the top, too long a development process (when, in fact, the Balanced Scorecard is a one-time measurement process), treating the Balanced Scorecard as an [isolated] systems project, hiring consultants lacking sufficient experience with a Balanced Scorecard, and introducing the Balanced Scorecard only for compensation. When organizations experience one or more of these pitfalls, their key executives can soon become impatient, confused, frustrated, and ultimately, opposed to Balanced Scorecard initiatives. It is imperative to understand both what the Balanced Scorecard must be (e.g. cohesive and comprehensive) and what it must not be (e.g. fragmented and episodic). Kaplan and Norton correctly note that the journey they propose "is not easy or short. It requires commitment and perseverance. It requires teamwork and integration across traditional organizational boundaries and roles. The message must be reinforced often and in many ways." Those who are determined to achieve organization-wide breakthrough performance are fortunate to have Kaplan and Norton as companions every step of the way during what is indeed a perilous "journey."

68 of 70 people found the following review helpful:

5.0 out of 5 stars Best Practices in Organizational Communication, November 23, 2000

By 

Donald Mitchell "Jesus Loves You!" (Thanks for Providing My Reviews over 109,000 Helpful Votes Globally) - See all my reviews
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This review is from: The Strategy-Focused Organization: How Balanced Scorecard Companies Thrive in the New Business Environment (Hardcover)

The Strategy-Focused Organization clearly deserves more than five
stars. It is one of the ten most important business books of the past
decade. The book successfully outlines an enormous improvement in
communications practices for making important changes in for profit
and nonprofit organizations. The communications stall is the most prevalent one
in most organizations. Application of the authors' ideas can bring
about a significant improvement in our society.

This book is an
interim report on the application of the authors' concept, the
Balanced Scorecard (introduced in 1992 and described in the book of
the same name, published in 1996). The purpose of the book is to
provide "a roadmap for those who wish to create their own
Strategy-Focused Organization . . . [by employing the Balanced
Scorecard]."

If you don't know what the Balanced Scorecard is,
let me briefly describe it for you. A Balanced Scorecard adds several
important measures to the ones normally found in the accounting
system, designed to measure those areas where performance most
directly and powerfully affects strategic position. Such areas
include innovation, organizational learning, effectiveness in key
tasks, and performance with key audiences like customers. The
measures are chosen to reflect the systematic effects of how the
organization's overall value and performance are improved, and are
displayed in a Strategy Map that communicates those ideas to one and
all. In doing so, the Balanced Scorecard is the applied solution to
many of the issues raised about how to establish a learning
organization in Peter Senge's The Fifth Discipline.

Most new
business concepts do not last long enough to warrant a study on their
effectiveness. The ones that do, like reengineering a few years ago,
usually display more problems than successes. The Balanced Scorecard
concept is the exception. The results have been very positive for
almost all those who have employed it.

The key seems to lie in
having everyone in the organization have a more complete understanding
of what the organization is trying to accomplish. As such, the
authors have actually uncovered something much more significant than a
strategy communications process. Harvard Business School Professor
and accounting guru (Activity-Based Costing) Bob Kaplan and consultant
David Norton have uncovered a best practice in how to communicate any
important message in an organization. Although the book does not
address that latter point, discerning readers will quickly spot it.
Presumably the authors will too at some point, and a future book will
begin to address this important application.

The focus of this
book is on how Balanced Scorecard "adopting companies used [it]
. . . to implement new strategies." The finding is that with
"their new focus, alignment, and learning, the organizations
enjoyed nonlinear performance breakthroughs." This is quite
remarkable because organizations have reported in the past that
implementing new strategies is one of the most difficult tasks they
ever take on. Studies cited by the authors point to one problem being
that most people in the organization are never clear on what the new
strategy is. So if careful coordination and purposeful change are
required, the speeding relay team may instead drop the baton along the
way.

The Balanced Scorecard provides for a fundamental strategic
control mechanism in the same way that the budget provides an
operational control. The Balanced Scorecard is at the center of the
organization's business planning, getting feedback to improve learning
about how to proceed and then translating the organization's vision
for each employee. This feedback is critical because most initial
concepts for strategy are flawed in fundamental ways. As the authors
point out, strategies should be treated as hypotheses, rather than as
commandments written permanently in stone. Only by uncovering those
flaws and correcting them does a new strategy have a good chance of
succeeding.

The book features a lot of case histories that explain
what the most successful organizations have done to apply the Balanced
Scorecard. These are particularly valuable for making the key
elements of the Balanced Scorecard clearer. For example, the book
contains many pages of Strategy Maps for different organizations.
These maps connect financial, customer, internal process, and learning
objectives in an explicit description of how improvement in each area
is connected to each other one, and to the organization's overall
objectives. Without these detailed examples, it would be very hard to
grasp the heart of the communications process involved here.

These
financial and nonfinancial metrics can then be used to create personal
objectives for each person in the organization for contributing to the
ultimate success. Management by objectives measures and compensation
systems can be connected to the new strategy in this way.

The
research emphasizes several important themes:

(1) Translate the
strategy into operational terms

(2) Align the organization to create
necessary synergies

(3) Make strategic initiatives everyone's
everyday job

(4) Make strategy a continuing process

(5) Mobilize
change through executive leadership

I especially found the surveys
helpful for describing what was different about the effectiveness of
organizations using the Balanced Scorecard. They outperform the other
companies by about 100 percent in having everyone in the organization
understand what the organization's strategy is.

The book also
contains a very helpful section of frequently asked questions about
the Balanced Scorecard.

Let me be sure that you understand what the
limitation of the Balanced Scorecard is. If you conceptualize a
strategy that is not as good as one that your competitor develops, you
will still be vulnerable to losing ground until such time as you
reconceptualize your strategy. The Balanced Scorecard can help you
realize that that task is needed and provide some clues, but this
process will be most helpful to those who excel at conceiving of
pre-emptive strategies that their organizations have advantages in
implementing.

After you have finished reading, sharing and
applying these lessons, I suggest you think about where else people
need better communications processes. Then abstract the elements of
this model to apply in those circumstances as well.

Get where you
want to go more rapidly!