How To Maximize Your Success with Strategic Alignment

As requested, weve got a short issue this time. And weve made it even easier to speed-read with a picture. The time has come to combine all Top 5 Success Factors into an integrated system to maximize your success, a system we call Strategic Alignment. Strategic Alignment is best illustrated with this diagram:

Here you see the Top 5 Success Factors arranged in what looks like the crosshairs of a rifle or a radar screen. The point is to demonstrate that all factors are aligned, with Operations (what we do all day) in the center. But actually it does not matter how you position the 5 factors, since all are interrelated and important. Heres how this concept can help you: 1. Your organization functions as a system, a whole which is greater than the sum of its parts, whether you want it to or not. All the parts are connected and interdependent. If something happens to one, it affects the others, and so forth. You cannot work on one of these Success Factors effectively without acknowledging its linkages with the others. For example, Strategic Focus should be developed with the input of your People and Customers, among other constituents.

2. For optimum success, it is essential to have these factors aligned. Most importantly your people must be aligned with what customers want and need. Operations should be designed to produce value for customers. Strategy is the overarching big plan, but unless it is aligned with your financial condition, you will have problems. If you reflect on this diagram and think about the relationships between each pair of Success Factors, you begin to see how this can be a guide to action. 3. In developing your strategic plans, this Strategic Alignment diagram can serve as a valuable reminder to be sure you have all the key factors covered. I once worked with a client group who had a lot of ideas which we began putting on the board. Then we sorted the ideas into the 5 Success Factors and found out that there was not one single point related to the organizations people! Some of them were participating in the meeting, but no one voiced how important it was to include people/staff development/training in the strategic plan. A correlary of this is, everything

you manage or control can be put under one of these 5 Success Factors if you understand them adequately. 4. When you go to implement a plan of any kind, you run into the problem that certain issues or responsibilities affect everybody and cannot be neatly pigeonholed into an existing functional department like manufacturing, sales or service. In industry it is increasingly common to deal with these problems through organizing cross-functional teams representing different areas of the company. One great way to do this is to divide your people up into 5 teams, one for each Success Factor. If you have enough people, consider posting a sign-up sheet in the break room or on your intranet and let people sign up for what they are interested in. If youre a nonprofit, mix up board members, staff and volunteers on the 5 teams so they can work together on broad issues. However you organize, make sure you have these 5 bases covered. The Strategic Focus (or Strategic Management) committee can include the chairs of the other 4 groups plus the CEO, or it can be a group unto itself. Again this framework helps ensure that everything important gets covered and that there is a group already in place for every cross-functional or large problem which comes up. As Albert Einstein said, "Everything should be as simple as possible, but no simpler." Strategic Alignment is just such a system--about as simple as you can get, but (or should we say therefore) very powerful. I am indebted to a really great book, The Power of Alignment* for some of these concepts. Also highly relevant and really good is The Balanced Scorecard* Ive mentioned before. Both are well grounded in research and practice.

Strategic Planning "Organizations need a new kind of management system one explicitly designed to manage strategy, not tactics. Organizations today need a language for communicating strategy as well as processes and systems that help them implement strategy and gain feedback about their strategy. Success comes from having strategy become everyones everyday job." Kaplan & Norton, The Balanced Scorecard Balanced Scorecard The Business Scorecard is a process by which vision and strategy can drive business planning. A primary goal is to envision objectives which can be measured. The approach was devised by Robert Kaplan and David Norton in a number of articles published in the Harvard Business Review between 1992 and 1996. As the approach was widely adopted and gained the momentum of a movement within management practice, Robert S. Kaplan and David P. Norton then authored two important books : The Balanced Scorecard: Translating Strategy into Action (Boston: Harvard Business School Press, 2000) The Strategy-Focused Organization: How Balanced Scorecard Companies Thrive in the New Business Environment (Boston: Harvard Business School Press, 2001)

It is a integrative framework that:

Communicates strategy so that everyone understands the objectives and their role in them; Aligns resources to focus on the key drivers of strategy; and Monitors the execution of strategy by tracking measurable results. "The balanced scorecard retains traditional financial measures. But financial measures tell the story of past events, an adequate story for industrial age companies for which investments in long-term capabilities and customer relationships were not critical for success. These financial

measures are inadequate, however, for guiding and evaluating the journey that information age companies must make to create future value through investment in customers, suppliers, employees, processes, technology, and innovation." Kaplan & Norton, The Balanced Scorecard The Balanced Scorecard methodology typically communicates strategy across the four perspectives: 1. 2. 3. 4. Financial: What financial returns are required by investors? Customer: What do our customers want? Internal Process: What do we need to do to deliver? Learning and Growth. How do we sustain the business?

Performance measurement in general, and the Balanced Scorecard in particular, attempts to address a key management concern: companies often fail to turn strategy into action. The Balanced Scorecard is a business management concept that transforms both financial and nonfinancial data into a detailed roadmap that helps an enterprise measure performance and meet both near and long-term objectives.

Balanced Scorecard Issues & Metrics

The task is to define Objectives, Measures, Targets and Initiatives (performance indicators) in each of these Scorecard areas. Example Scorecard Issues Affecting Organizational Strategy Employees:

Customers:

Develop Corporate Culture (values, relationships, behavior) Service mapping to improve employee satisfaction Salary, Benefits & Retention Communications Development & Training

Product Positioning & Branding Market Support Channels to Market Channels Support Customer Support & Training

Operations:

Financial:

Administration Marketing & Sales Operations Business Process Mapping & Optimization Inventory & Manufacturing Credit & Collections Supply Chain

Develop Performance Metrics Manage Burn Rate Reduce Risk Accounting & Audits

Leading & Lagging Indicators

A "Lead Indicator" is an in-process measure it is predictive. A "Lag Indicator" is a measure of results, outputs and outcomes it provides an accurate snap-shot in time. The following table is a small sampling of lag & lead indicators to illustrate the relationship between objectives and measurement/ feedback. The lists of potential KPIs is quite extensive, and the selection must be tailored to a specific business process and environment. Additional discussion of this topic can be found in the sections "KPI, Metrics & Dashboard", and in"Meaningful Metrics". Strategic Objectives Strategic Measurements Lag Indicators (snap-shot in time) Lead Indicators (predictive)

Financial Perspective: In addition to key financial data (revenue, expenses, profit and loss, etc.), risk assessment and cost-benefit data apply to this category. Timely and accurate data, specific to each product and service, may be essential for a clear financial picture. F1: Improve Returns F2: Broaden Revenue Mix F3: Reduce Cost Structure Return on Investment Revenue Growth Deposit Service Cost Change Revenue Mix

Customer Perspective: If customers are not satisfied, they will eventually find other suppliers that will meet their needs. Poor performance from this perspective is thus a leading indicator of future decline even though the current financial picture may look good. C1: Increase Customer Satisfaction with Our Products & People C2: Increase Satisfaction After the Sale Share of Segment Depth of Relation

Customer Retention

Satisfaction Survey

Internal Business Process Perspective: Metrics based on this perspective allow managers to know how well their business is running, and whether its products and services conform to customers requirements (the mission). In addition to the strategic management process, two kinds of business processes may be identified: (a) mission-oriented processes, and (b) support processes. Support processes are often repetitive in nature and thus easier to measure and benchmark using generic metrics. Mission-oriented metrics are unique and have to be precisely defined and validated. I1: Understand our Customer I2: Create Innovative Products I3: Cross-Sell Products I4: Shift Customers to CostEffective Channels I5: Minimize Operational Problems I6: Responsive Service New Product Revenue Cross-Sell Ratio Channel Mix Change Service Error Rate Request Fulfillment Time Hours with Customer Product Development Cycle

Learning & Growth Perspective: In a knowledge-worker organization, people (the only repository of knowledge) are the main resource. In the current environment of rapid technological change, it is essential for knowledge workers to be continuous learners. Learning is more than training. Metrics (related to training, performance support, knowledge management, technology infrastructure supporting communication and collaboration, corporate culture, core competencies and innovation) guide managers in focusing budget decisions where it can have the most impact in supporting the organization's ability to change and grow. L1: Develop Strategic Skills L2: Provide Strategic Info Employee Satisfaction Strategic Job Coverage Ratio Strategic Info Availability Ratio

L3: Align Personal Goals

Revenue per Employee

Personal Goals Alignment (%)

Balanced Scorecard Strategy Map The following graphic illustrates the approach to mapping objectives in the Balanced Scorecard approach. These relationships show how alignment and integration can be achieved.

Linked Scorecards The following graphic illustrates a comprehensive use of Scorecards at levels across the enterprise as an instrument to establish alignment and integration.

Balanced Scorecard as a Centerpiece of Strategy The following graphic illustrates how the Balanced Scorecard can be used as a centerpiece to strategy. Note how the the relationships are portrayed between: Mission, Vision, Values, Strategy, and Performance Milestones.