SFO part 3

8/6/2019 SFO part 3

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8/6/2019 SFO part 3


Background

� Much of the work done today is knowledge-based, not physical work.

� The challenge for organization today is how toenlist the hearts and minds of all theemployees

� BSC provides organizations with a powerful

tool for communication and alignment. Itfocuses the energies and talents of employeeson the organizations strategic objective

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Three processes to align employees to

the strategy� Communication and education

� Developing personal and team objectives

� Incentive and reward systems

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Creating Strategic Awareness

Chapter 8

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Background

� The changes in behavior required for aworkforce to execute a new strategy are fargreater than the changes required to get

consumers to try a new product

� The processes start with creating strategyawareness, strategy mindshare, strategy

loyalty, becoming a strategy missionary.� Top down communication, not a top down

direction

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The communication program

� Develop an understanding of the strategythroughout the organization

� Develop buy-in to support the organizationsstrategy

� Educate the organization about the balancedscorecard measurement and management

system for implementing the strategy� Provide feedback, via the balanced scorecard,

about the strategy

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Communications media

� The communication channel continuum from

rich channels to lean channels: One on one,

hallway, small group meeting, video

conferencing, telephone conversation,

voicemail, e mail, large group meeting,

handwritten personal notes, advanced copies

of agendas, faxes, interoffice memos, formalspeeches, letters, newsletters, reports

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Case studies

� Nova Scotia power

� The mobil experience: sustaining the

communication program� Motorola: New channels

� Sears: Learning maps

�Strategy trees

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Understanding the measures

� Understanding the strategy through extensiveand in innovative communication processes is theinitial building block for creating strategicawareness

� Managers should define clearly the measuresthat will be used to guide and monitor thestrategy on the scorecard and how the measureswill be calculated from underlying data

� Employees must understand the measures clearlyfor their decision and actions to affect thestrategy in the intended way

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Defining personal and team

objectives

Chapter 9

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background

� For strategy to become truly meaningful to

employees, personal goals and objectives must

be aligned with the organizational objectives

� MBO is different from BSC

� Methods from SFO: the super bowl approach,

alignment with strategic initiatives, integration

with existing planning an quality processes,integration with human resource processes, and

personal balanced scorecards.

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The super bowl approach

� A simple, clear, and focused set of measures andassociated targets for all employees

� It reinforced the new strategy and required little to no

education about the balanced scorecard concept tomake the measures and targets meaningful andactionable to frontline employees

� This approach does not exploit any local informationfrom middle managers and frontline employees forselecting measures and targets

� Fine for the first year implementation, and a relativelyhomogenous sales unit

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Alignment with strategic initiatives

� Government organizations tend to build their resourceallocation and control processes around programs, asthey are typically funded through authorized programs

� Programs provide the linkage from employees activity

to the agency mission� The workers had a context for their performance

measures

� This method clearly delineated the responsibilities of

frontline work teams� The program was so structured that individuals were

not left with much of a role for innovation and crossfunctional initiatives

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Integration with existing planning and

quality processes

� Senior management educated on TQM principles

� Point of arrival (POA) goals established at the

corporate level

� Balanced scorecard business plan for each region

to achieve POA targets

� Deployment through a Quality Improvement

Process (QIP) at each business unit and QualityPerformance Reviews (QPRs) for every individual

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� The system built upon the existing emphasis

on quality

�

It supplied employees with both intrinsic andextrinsic motivation

� District objectives were aligned with corporate

objectives and local success would contribute

to achieving corporate goals

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Integration with the human resource

process

� Establishing themes that linkages from financialobjectives to objectives in the customer, internal, andlearning and growth perspectives

�

Scorecard come alive by linking measures to specificemployee development and change programs

� Developing a new management structure to attract,develop, and retain the highly motivated and strategyfocused workforce required for the new businessstrategy

� The HR management structure developed a set of specific job families

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Personal balanced scorecards

� When individuals can construct their ownbalanced scorecards, then we have produced theclearest mechanism for aligning individual

objectives to business unit and corporateobjectives

� Fold-up personal scorecard: contains three levelsof information

� Individuals did not develop their local objectivesuntil they had a clear understanding of corporateand business units objectives

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The balanced paycheck

Chapter 10

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Background

� The final linkage from high level strategy to

day-to-day actions occurs when companies

link individuals incentive and reward

programs to the balanced scorecards

� The scorecards made explicit the tradeoffs

involved in implementing the new strategy

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Linking compensation to balance

scorecards

� Incentive compensation is a powerful lever togain peoples attention to company and businessunit objectives.

�

The linkage plays two important roles: it focusesemployees attention on the measures that aremost critical for the strategy and it providesextrinsic motivation by rewarding employeeswhen they and the organization succeed in

reaching their targets� The particular details of how to link incentive pay

to compensation differs for each companies.

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Study case

� Mobil north america marketing and refining

� Nova scotia power

�CIGNA property and casualty

� Winterthur international

� Texaco refinery and marketing, inc: noncash

compensation� Other organizations

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Effective compensation design and

implementation

� Some companies had yet to make the link toincentive compensation, but the reasonsrelated to lack of readiness, not opposition to

the concept� Several design issues arise when tying

compensation to the balanced scorecard:Speed of implementation, objective versussubjective measures, number of measures,team versus individual, frequency of updates

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Speed of implementation

� Being unconfident for choosing the measures

� Companies may not have good, reliable data

for many of the measures at the early stagesof their program

� Unintended or unexpected consequences

could result from how the targets for the

measures are achieved.

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Objective versus subjective measures

� Several executives stresses the importance of

having compensation-based measures be

more objective and outcome based, rather

than being measures of tasks and activities

� Many organizations tie commissions and

compensation to a customer satisfaction

measure which leads to dysfunctionalbehavior

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Number of measures

� A well-constructed strategy scorecard will not beas confusing as an ad hoc collection of two dozenmetrics such as might arise from a stakeholder orKPI scorecard

� The metrics derived from an integrated strategymap should reflect a single strategy with only twoor three strategic themes (e.g. revenue growth,cost reduction, and asset intensity)

� Employees can picture the cause-and-effectlinkages that integrate the different performancedriver and outcome measures

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Individual versus team

� Individual versus team metrics involve

managing several tradeoffs and tensions

�

Team-based rewards encourage cooperativebehavior and group problem solving

� The free rider problem can be mitigated in

environments of high-visibility where many

people can observe and evaluate the effort

and contributions of individual

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Frequency of updates

� While the basic strategy of the companies may notchange, the value proposition, internal processes,critical skills, and information technology required toimplement the strategy may have to undergo frequent

updates� Companies that anticipate frequent within-year

changes may wish not to link their incentive pay to amultitude of balanced scorecard measures in the fourperspectives

� Companies in rapidly changing environments can basetheir incentive pay on customer outcomes and long runfinancial performance

Documents

SFO part 3