The Strategy-Focused Organization II

7/30/2019 The Strategy-Focused Organization II

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The Strategy-Focused Organization: Theory and Method (II)

Synergy

Strategy as a Step in a Continuum

Aligning the Strategy to the Organization


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Synergy

Synergy= The combination of factors which each multiply theeffects of the other(s) rather than merely adding to them. [i]

When the whole resulting from employing organizationalresources and capabilities exceeds the sum of the parts we mayspeak of a special global effect that is its synergy.

[i] Source:www.llrc.org/jargonbuster.htm
http://www.llrc.org/jargonbuster.htmhttp://www.llrc.org/jargonbuster.htm


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Illustration: Market Value Added: General Motors & General

Electric compared

General Motors General Electric

Market value- Capital Employed

= Market Value Added

Revenues

Employees

Profits

$62 billion($83 billion)

= - $21 billion

$169 billion

709 000

$5.0 billion

$176 billion($54 billion)

= +122 billion

$70 billion

222 000

$7.3 billion

Source: Lowe, Julian. Strategy and Management of Change, Understanding Strategic

Performance


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The synergy allows the organization to transform the sum of itsnumerous sectors, business units, departments, different functional

areas such as finance, manufacturing or sales into a whole exceedingtheir mere sum, resulting into a new type of organization that displaya new feature of being a strategy-focused organization.

Synergy has the power of transforming an institution traditionallydesigned around functional specialties, each function having its ownbody of knowledge, language and culture, therefore, beingfragmented by major barriers, into a strategy-focused organization. Itis surprising to see how a functional-oriented organization leaves itsplace to a highly focused organization that break through the former

barriers between the functional specialties of the same company.


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Executives replace formal reporting structures with strategic themesand priorities that enable a consistent message and consistent set ofpriorities to be used across diverse and dispersed organizational

units. Business units and shared service units become linked to thestrategy through the common themes and objectives that permeatetheir scorecards. Often, the ad hoc organizations emerge to focus onscorecard strategic themes.[i]

We have to underline the new concepts arising from such an

approach: the organizational process, the strategy-focusedorganization, the ad hoc organizations (emerged to focus on strategicthemes). These concepts add themselves to the traditional approachof the organizations and together with the above mentionedconcepts required by the strategic management approach of a

companythe strategy map, the Balanced Scorecards, the cause-and-effect linkages, the synergy as an overarching goal of the organization

lead to rethinking of the science of the organization in arevolutionary way.[i] Kaplan, Robert S., Norton, D. (2001). Op. cit ., p. 12


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The science of organization keeps its pace with the new type ofeconomy that emerged with the beginning of the newmillennium. This new approach which is tantamount to a new

paradigm sanctions the triumph of weberian perspective on theeconomy and organizations. The ethos has a crucial role inpromoting a new historical type of economy. The new operatingmanagement system focused on the strategy and on theintangible assets is the equivalent within the organizational

strategic approach of the weberian concept of ethos. Coming back to the operational aspects of the strategic

approach we should, further, stress out that it illustrates atopological research perspective in the study of a company aslong as such an approach requires to look for other spaces ofattributes or variable describing the ad hoc organizationsemerged to focus on scorecard strategic themes. Kaplan andNorton gave an example of such a topological analysis applied toa retail firm for womens clothing (see next slide).


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Financial

Revenue

Growth

ProductQuality ShoppingExperience

Profitability

Customer

Learning

Internal

MerchandiseBuying/Planning

SystemsFactory

RelationshipSkills

Line PlanManagementA ClassFactories

Sourcing and Distribution Theme Measurement Target Initiative Operating

Income

Same store

growth

20% increase

12% increase Likes Program

Return rate

- Quality- Other Customer loyalty

- Ever active- # units

Reduce by

50% each year

60%

2.4 Units

Quality Management

Customer Loyalty

Merchandise

from A

factories

Items in stock

70% by year

3

85% Corporate Factory

Development

Program

% of strategic

skills available

Strategic systems

vs. Plan

Year 1 (50%)

Year 3 (75%)

Year 5 (90%)

Strategic Skills Plan

MerchantsDesktop


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The strategic theme describe the recipe for combining the

intangible ingredients of skills, technology, and organizational

climate with internal processes, such as sourcing anddistribution, to create tangible outcomescustomer loyalty,revenue growth, and profitability. In this way, the BalancedScorecard provides the measurement and management

framework for knowledge-based strategies.[i]

[i] Ibid., p. 72


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Strategy as a step in a continuum

We have to make some additional specifications to the concept of

strategy. Strategy is one step in a continuum. It corresponds to theoperational act of defining the logic of how a vision proposed bya leader could be achieved within an organization. The strategymakes credible a vision. It can even quantify a vision, as GerryIsom proceeded immediately after the moment he accepted the

presidency of the division of a well-known company (CIGNAsProperty & Casualty Division). The management process, therefore,involves many steps, starting with the mission of an organization(why we exist) continuing with the core value (what we believein), the vision (what we want to be), followed by strategy (our

game plan), the Balanced Scorecard as the step of implementationwithin this continuum, strategic initiatives (what we need to do),personal objectives and, finally, the strategic outcomes. [i]

[i] See Kaplan, Robert S., Norton, D. (2001). Op. cit., p. 73


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All these steps are sequences in a continuum which we have chosento call organizational process. This perspective makes explicit thatan organization is not merely a static structure but a strategic

organizational process. The process begins in a top down fashion,clearly defining strategy from the perspective of the shareholder andcustomer. [i]

It asks What are the financial objectives for growth andproductivity? () Once the financial objectives have been specified

the process continues by asking, Who are the target customers thatwill generate revenue growth and a more profitable mix of productsand services? What are their objectives, and how do we measuresuccess with them? The customer perspective also should includethe value proposition, which defines how the company differentiates

itself to attract, retain, and deepen relationships with targetedcustomers. [ii]

[i] Ibid., p. 76

[ii] Ibid., p. 76


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Financial and customer objectives are desired outcomes, but they

dont explicate how to achieve them. The internal business

processessuch as product design, brand and market development,sales, services, and operations and logisticsdefine the activitiesneeded to create the desired customer value proposition anddifferentiation, and the desired financial outcomes. The forth

perspective recognizes that the ability to execute internal businessprocesses in new and differentiated ways will be based on theorganization infrastructure; the skills, capabilities, and knowledge ofemployees; the technology that they use; and the climate in which

they work. We refer to these as the learning and growth factors.[i][i] Ibid. p. 76


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The four perspectives are not merely perspectives on theorganization but, in the same time, they are organizationalframeworks of the activity and reference frames of how to think,

how to act, to do things so that, finally, the desired outcomesshould be achieved. What is even more relevant is that each ofthese four perspectives describes or indicates a latentorganization that become manifest if and while the target

indicators (which appears to the employees as the exigencies) areaccomplished. We can see that the architecture of the Balanced

Scorecard has a top-down logic, starting with the desiredfinancial and customer outcomes and, then, moving to the valueproposition, business processes, and infrastructure that are thedrivers and the desired outcomes constitute the hypothesis thatdefine the strategy. [i]

[i] Ibid., p. 77


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Source: Value Based Management.net. Available from:http://www.valuebasedmanagement.net/methods_balancedscorecard.html
http://www.valuebasedmanagement.net/methods_balancedscorecard.htmlhttp://www.valuebasedmanagement.net/methods_balancedscorecard.html


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They are focused themes of a certain strategy and they allowthe organizations to deal with the conflicting priorities[i] inorder to make decision on a bipolar axis between oppositealternatives such as: growth versus profitability or long-term

versus short-term. The strategic themes reflect the corporation

executives view of what must be done internally to achieve

strategic outcomes.[ii]

[i] Ibid., p. 78

[ii] Ibid., p. 78


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Aligning the Organization to the Strategy

What is an organization viewed from a strategic managementperspective? It consists, mainly, of multiple business units,multiple divisions and it appears us as a collection of sharedservice units. A difficult goal emerges for such organizations:to link their scorecard, developed at the corporate or divisionlevel, down to their decentralized organizational units.[i]

To do this involves creating alignment and synergy across theorganization[ii]. In order to implement its strategy focused oncustomer, Mobil company gave it up to its centralizedorganization by replacing it with a new one consisting of 18

geographic business units.

[i] Ibid., p. 44

[ii] Ibid., p. 44


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In addition, the previously centralized staff functions had beentransformed into 14 shared service units (e.g. informationservices, finance, planning and analysis, human resources, and

environment and safety) that had to sell services to the localbusiness units and get agreement from them on prices and levelsof service provided.[i]

Two challenges emerged from such a new organizationalsituation. The first one was referring at how to keep these 18+14units, which were working as different entities, focused on thesame high level strategy[ii]. The second one was referring atupgrading the skills of the newly appointed heads, knowingthat the business units heads had grown up within the oldorganizational structure, that is within a structured, top-down,functional organization.[iii]

[i] Ibid., p. 44

[ii] Ibid., p. 44

[iii] Ibid., p. 44


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The transition to the new organization had to start with the upgrading the skills ofthe top executives. Here is the witness of one of them: We were taking peoplewho had spent their whole professional life as managers in a big functional

organization, and we were asking them to become the leaders of moreentrepreneurial profit-making businesses, some with $1 billion in assets. Howwere we going to get them out of their historic area of functional expertise tothink strategically, as general managers of profit-oriented businesses?[i]

The Balanced Scorecard proved to have the power both to create strategicawareness and skills among the new units managers[ii]. It revealed to work

optimally as a mechanism proper to attain such a goal to create a new strategicpotential and to align the strategies of the decentralized units with each otherand with the division[iii]. The leadership team created the scorecard as atemplate to be multiplied elsewhere in the organization.

[i]R. S. Kaplan, Mobil USM&R (A): Linking the Balanced Scorecard, 9-197-025 (Boston:Harvard Business School, 1996), p. 44

[ii] Kaplan, Robert S., Norton, D. (2001). Op. cit., p. 44[iii] Ibid., p. 44


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The template is a logical construct that can be used in order to build astrategy map, therefore, to describe a strategy and, by doing this, to improvethe quality of executive teams insights. The template is, therefore, a criticalreference frame for analyzing different scorecards being used by the Strategic

Business Units (SBU) of a company. The management team will comparethe scorecards being used by SBUs to the template. Applying the template to SBU scorecards, executive team could

identify gaps in the strategies being implemented at lower levels of theorganization and ensure that the high-level strategies were truly reflected onlocal scorecards.[i] The templates help us also to keep up the control over aperformance measurement system which typically involves aggregation ofstand-alone measures, such as return on capital employed, customersatisfaction, and defect rates.[ii]

We should regard the Balanced Scorecard not only as a method ofmanagement research but also as a way of thinking, expressing a state of mindand an organizational ethos, a new evolutionary phase in the evolution of thespirit of capitalism.

[i] Ibid., p. 99[ii] Ibid., p. 99

The Strategy-Focused Organization II

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