Over the past twenty years, I’ve facilitated thousands of workshops during which my clients engage in the significant mental effort required to develop Balanced Scorecards that will lead to the execution of their strategy. It’s hard work – intellectually demanding and often tiring, but ultimately rewarding when the entire team lands on the same strategic page, understanding exactly what success looks like and how they’ll get there.

When the clock ticks close to noon during these events it’s not uncommon for participants to meet my calls for a lunch break with a few sneers and remarks that suggest the not so subtle subtext of: “We’re professionals, we don’t need a lunch break…we can power through this!” I certainly understand the desire to capitalize on the momentum that has accumulated during the morning session, and applaud the work ethic of those wanting to carry on without a break, but as a mounting body of research indicates, working through lunch is simply not a good idea for you, or your organization.

Chris Cunningham, University of Tennessee Professor of Industrial-Organizational and Occupational Health believes a mid-day break is essential in restoring the energy and focus necessary to tackle the pressing problems most of us encounter in our day-to-day work lives. “The attention it takes to focus at work drains (people) of psychological, social, and material reserves, leading to stress and lower productivity. Taking a lunch break away from the desk lets people separate themselves from the source of that drain.”

It’s not just productivity that suffers when you sit at your desk or in a conference room toil
ing through the lunch hour, but in fact you’re putting your health in jeopardy. University of Arizona researchers found that the typical office worker’s desk has about 400 times more germs per square inch than an office toilet seat. The nastiest germ minefields are your keyboard and phone, storing in excess of 20,000 germs per square inch. So if you think hiding out in your office is protecting you from that flu bug going around the office, think again. A cold is small potatoes, however, compared to the damage that excess sitting can cause in the long term. Research from the Mayo Clinic has linked sitting for extended periods of time with a number of significant health concerns including obesity and metabolic syndrome, a deleterious band of conditions including high blood pressure, high blood sugar, excess body fat around the waist, and abnormal cholesterol levels. As if that weren’t bad enough, the research also suggests that sitting too much can increase the risk of death from cardiovascular disease and cancer.

Fortunately, we can combat these issues with relative ease. Simply wiping your work surface with hand sanitizer can eliminate the vast majority of germs taking up residence around your desk. As to the bigger problems related to excess sitting, the best medicine is to simply get up and get away at lunch, preferably interacting with nature. You don’t need a vigorous hike lasting a full hour, everyone’s clock is different, and for some a ten-minute stroll around your parking lot may be all you need to re-energize and re-focus for the rest of the day. Whatever you choose, know that you’re doing both your mind and body a great service. Research documenting the brain’s ability to subconsciously problem solve is piling up rapidly, so an answer to that challenge you just couldn’t solve before lunch, no matter how hard you tried, may come flashing through while you’re out enjoying a short break. In addition to the mental breakthroughs you’ll enjoy, getting up and spending a few minutes outside is probably the best thing you can do to restore the reserves of energy and focus we all need to succeed in today’s workplace.

Notes:

-Making the Most of Your Lunch Hour, Wall Street Journal, October 8, 2013.
-Germ statistics from: http://www.cnn.com/2004/HEALTH/12/13/cold.flu.desk/index.html

One of the many benefits of performance measurement is its ability to help us understand and provide context to the past. Most modern organizations, which find themselves drowning in a sea of raw data while yearning for real insights, would undoubtedly agree this attribute of measurement provides a vital service. However, the very best performance measures also allow us to extend our gaze into, and therefore plan for, the future.

Of course this necessity of peering into the future in order to craft a proactive response applies to virtually any organization, in any discipline. One unique application of this facet of measurement is the prevention of gang violence in Los Angeles. With gang-related homicides numbering in the hundreds, it’s vital that police officers be equipped with the very best information in order to prevent future attacks on a population that is almost exclusively young and extremely vulnerable.

An anthropologist at the University of California Los Angeles (UCLA) is using a novel measurement approach to combat the problem. His name is P. Jeffrey Brantingham and his method is something called the Lotka-Volterra equations. Back in the 1920s Lotka, an American statistician, and Volterra, an Italian mathematician discovered that similar-sized rival groups of a species will claim territories whose boundaries form a perpendicular line halfway between each group’s home base. Brantingham and his team at UCLA took the equations and, using police data on the location of thirteen approximately equal sized gangs in East Los Angeles, mapped their ‘anchor points’ or home base. With the anchor established, they were able to draw corresponding boundaries for each gang’s territory and predict where violent clashes were most likely to take place. According to their model 58.8% of violence would occur less than a fifth of a mile from the border, 87.5% within two-fifths of a mile, and 99.8% within a full mile. Their predictions turned out to be remarkably accurate. Of the actual 563 gang-related incidents over a three-year period, 58.2% were within a fifth of a mile, 83.1% within two-fifths, and 97.7% within a mile.

The breakthrough in this approach is the accuracy with which the researchers can determine a gang border. Police have sketched gang maps for years, but are bound by the conventions of a standard map. That is, they typically draw borders along streets, rivers, etc. The UCLA team’s measurements allow police to pinpoint specific hotspots, and therefore allocate resources with far greater efficiency and effectiveness.

This story should serve as a reminder to us that no problem is immune to the powerful impact of performance measurement and management. Right now there are undoubtedly perplexing issues facing you that may seem to defy measurement, but if you scratch below the surface, look to history as a guide, and apply some creativity to the situation you will find a measurement that yields astounding insights.

Sources:
Joseph Stromberg, “Mapping Turf Wars,” Smithsonian, April 2013, page 24.

2013 is here, and many of us will be thinking about how we can change our lives for the better this year. Accordingly we will make a number of resolutions.  For all of you leaders out there (and really, we’re all leaders in one capacity or another), here are three resolutions I suggest you consider, to improve your organizational performance.

1)   Listen more: I’ve written previously about our tendency to be poor listeners (see “Are You Listening” at Senalosa.com), citing the sorry statistic that we listen at about a 25 percent comprehension rate. Two recent events brought this home to me on a very personal level. The first was a thirty minute so-called “exchange of ideas” meeting with the CEO of a company with whom I was considering a partnership. He spoke for at least twenty-seven of those thirty minutes, with no regard whatsoever for my input. Some exchange! More like a verbal tsunami. Not long afterward I was on the phone with someone who also graduated from the machine gun school of conversation. At one point, when I was able to squeeze a word into this ‘conversation,’ I mentioned the importance of listening in successful consulting engagements. He immediately broke in saying, “You’re right; I used to talk a lot, but now I mostly listen.” It was everything I could do to withhold my laughter. Not only is this behavior impolite, it’s counter-productive. We spend seven out of every ten minutes communicating with someone, and fully 45 percent of our time at the office is spent listening. If just a quarter of that information is getting through, think of the knowledge and productivity we’re squandering.

2)   Connect the dots: The CEO of a utility company asked his workers why they get up at 2:00 a.m., go out in the snow and risk their lives climbing a pole to get the electricity back up and running. Not a single one said it was because of the extra overtime money he’d receive. Instead, they replied that they did it because of the feeling they get upon seeing that cascade of lights come back on across the community. They know there are a lot of happy people there, and that provides them with a feeling of deep satisfaction. That’s connecting the dots between a job and the outcome it produces for a customer, and it doesn’t take a power outage to produce it. What can you do to make that connection for your employees?

3)   Question “expert” advice: I recently had the chance to hear a well-known business guru address an audience on a number of topics, including talent management and how to successfully negotiate change. His advice for talent? Hire all the 23 year olds you can because they’ll ask questions ‘older’ workers are too hardened to ask. Huh? This flies in the face of most thinking about maximizing human capital and harnessing employee knowledge. And it’s ridiculous to suggest that ‘older’ people don’t want to learn. Later, on the subject of change, he suggested that when people criticize the case for change ask them why five times and you’ll eventually get to something that’s embarrassing to them. I question this as well. Why would you try to humiliate someone to get them to support your change agenda? Surely there are better, more humane and dignified ways. There is so much advice out there these days, and in order to stay relevant and create attention for themselves in an increasingly crowded market, it seems some so-called experts feel they have to constantly push the envelope of accepted practice. However, in doing so their advice sometimes roars past the respectable label of iconoclastic and simply doesn’t fit with the reality on the ground. So listen to the experts (couldn’t resist another listening plug), but be sure to bring in your own unique blend of knowledge and experience when assessing their guidance and its relevance for your organization.

When I read a business magazine, it’s not only the articles themselves that draw my attention, but also the glossy eye-catching advertisements surrounding the words of wisdom. A scan of the ads reveals what’s hot in the business world – the products and services competing for executive mindshare in an increasingly complex global economy. Lately, I’ve noticed an increase in a unique offering on the pages of both scholarly and mass market publications – geographic locations: Cities, provinces, counties, states, and entire countries proudly announcing their readiness for business, inviting firms from across the globe to set up shop in their locale. Picturesque photos of the municipality are inevitably accompanied by promises of a highly motivated and skilled workforce, enlightened regulatory climate, and lower costs of doing business.

These ads are there for a reason. We live in a mobile world in which people and companies are increasingly nomadic, following the path, however meandering, they believe will lead to greater success and prosperity. If that means relocating a business from Indiana to India, from Toronto to Taipei, then so be it. The benefits of these moves appear obvious and abundant – lower wages, cheaper utility costs, better tax rates, a pool of skilled workers, the list goes on and on. But does the reality match the promise? In many cases, the answer is no. AMR Research discovered that 56% of companies moving production offshore experienced an increase in total landed costs, and a 2010 Ernst & Young survey of CEOs found that more than a third stated the overall costs of entering high-growth markets like Brazil, India, and China were higher than expected.

Writing in the Harvard Business Review, authors Porter and Rivkin argue that location choices often prove less desirable than expected because managers overlook the current and future hidden costs associated with a move to a foreign location.[i] To avoid disappointment, and a river of red ink, I would suggest organizations relocating to a new location create a Balanced Scorecard to gauge the move’s overall effectiveness. Let’s consider such a Scorecard beginning with the Employee Learning and Growth Perspective and working our way up.

Employee Learning and Growth Perspective:

Traditionally, three areas of ‘capital’ populate the EL & G perspective: Human, Information, and Organizational. Each of these will be accounted for in our offshoring Scorecard.

  • Human Capital: Offshoring is often undertaken based on the promise of a skilled and motivated workforce, one that is able to competently shepherd the firm’s products and services through production to ultimate delivery to customers. To ensure that is in fact the case, companies should include measures such as:
    • Strategic job coverage ratio (percentage of required skills possessed by the employee population)
    • Turnover
    • Training costs
    • Percentage of employees with advanced degrees (or other educational achievements)
    • Number of internal promotions – depicts the workforce’s ‘upward mobility’)
    • Number of workers hired versus projected (a gauge of skills present – if more workers are required, perhaps the promised skills are not present)
  • Information Capital: Here we typically attempt to measure how well technology is employed in the service of strategy execution. For offshoring endeavors a key measure will be the percentage of employees using technology, which determines whether employees are able to use enabling technologies effectively.
  • Organizational Capital: Considered the very ‘soft stuff,’ of company operations, and frequently represented by culture as defined by ‘the way we do things around here.’ A key measure to include in this category will be Employee satisfaction or engagement. Managers should carefully examine the responses of domestic employees and expatriates. Both groups could possibly struggle in a potential culture clash of geographically based ideals.

 

Internal Process Perspective:

Depending on the unique value chain employed by the company (the specific activities they pursue to drive value for their customers), measures in this perspective could vary widely. However, outlined below are a number of key metrics that should be carefully monitored by any offshoring entity.

  • Quality: Especially relevant in manufacturing environments, companies must ensure new locations maintain existing quality standards
  • Raw material usage: Related to the above, this will serve as a gauge of worker productivity.
  • Scrap rates: Again, related to quality and productivity.
  • Freight costs: They may increase as a result of reaching now distant markets.
  • Innovation: More a topic area than a specific metric. Firms must ensure innovation does not suffer if manufacturing is physically separated from research and development. Number of new products and services in the pipeline, and sales from new products and services may serve as representative indicators.
  • Supplier relations: Firms often spend years cultivating a trusted relationship with key suppliers. Will they be able to create such a bond in a new environment?
  • Inventory turns: An important indicator of operational efficiency, which is often a prime motivator for moving offshore.
  • Intellectual Property rights: One executive whose firm had moved their production to a new country described how they had removed units of measure on the gauges in their factory, fearing a loss of production knowledge. Protecting IP rights in countries with weak production may prove expensive.

Customer Perspective:

To compete effectively in today’s marketplace organizations must be masters of agility; swiftly responding to changing customer tastes and preferences, while at the same time meeting shareholder expectations. Offshore facilities can severely test a company’s ability to meet changing needs because of the lead times associated with distant locations. Consider a maker of fashion apparel. The items they’re shipping now may already be considered passé by the time they hit store shelves in far-flung locales, resulting in costly markdowns for the manufacturer. Here are some Customer-related metrics for your Offshore Scorecard:

  • Cash to cash cycle: How rapidly you can transform raw materials into finished goods.
  • Customer satisfaction
  • Customer retention
  • Share of wallet in key segments
  • Likelihood to recommend

Financial Perspective:

This perspective represents the ‘end in mind’ of your strategic story – the logic suggesting that successful execution in the other three perspectives will drive sustainable financial success. In addition to the standard arsenal of financial metrics, here are a few that are more germane to an offshoring organization:

  • Wage costs: Lower wages are almost always a strong impetus for moving offshore. Therefore, it’s vital you measure your costs to ensure you’re achieving the anticipated advantage. Sadly, you may find that advantage dissipating rapidly due to global pressure on wages. For example, in Shanghai, the wages of a typical line production worker spiked 125% between 2006 and 2011. In India, middle management salaries rose 13% in 2011.
  • Currency fluctuations: They can have a dramatic impact on profitability.
  • Taxes: Another prime motivator for making a move.

 

Some may argue that creating a Balanced Scorecard after an organization has already moved Offshore is a case of ‘too little too late.’ Of course, extensive due diligence should be applied before embarking on a move as substantial as offshoring. However, by carefully analyzing strategic metrics, managers are able to proactively shape their offshore operations, learning where adjustments are necessary and determining what interventions are called for to ensure the investment yields its’ promised benefits.


[i] Michael E. Porter and Jan W. Rivkin, “Choosing the United States,” Harvard Business Review, March 2012, PP. 80-93

Recently I worked with a client who was in the process of cascading the Balanced Scorecard throughout their organization; taking that all-important step of using the power of linked Scorecard performance measures to generate alignment from top to bottom. Among the groups developing cascaded metrics that day was the Information Technology (IT) Department, and at one point during the workshop their team lead called me over with a question that had been bothering him.

IT Team Member: “We’ve been told that minimizing expenses is crucial to the organization, and so we’ve created a cascaded measure of reducing vendor costs. What we’re going to do is negotiate with software and hardware vendors, and consultants to try and drive down our overall IT costs.”

PAUL: “Sounds good. What’s the issue?”

IT Team Member: “Well, we’re concerned that if we insist on lower costs from our vendors that could lead them to cut some corners, and ultimately result in poorer service to our customers here in the company…and that’s the last thing we want to happen.”

It was clear from the look on his face this was a dedicated professional who wanted to do the right thing for the organization, but was concerned that measures on the Balanced Scorecard could actually harm his goals by creating some unintended consequences.

He was right to be concerned. It’s not uncommon, especially for those who are new to the Scorecard system, to populate their model with measures that have the potential of driving the wrong, or inappropriate, behavior. In this case, if the IT department pursued aggressive targets for vendor cost reductions, that could very well lead to poorer service and in turn negatively impact other aspects of the organization’s strategy execution efforts; a classic case of a measure producing an unintentional effect.

To overcome this issue, a useful diagnostic test for your Scorecard measures is to critically examine each and ask whether the potential exists for any to drive unintended consequences. If it does, you should add what are often termed ‘counter-balanced’ measures. In the case of my client from the IT Department he knew that reducing costs was important to the bottom line but didn’t want those lower costs translating to poorer service for his customers. Therefore, he chose a measure of customer satisfaction with IT services to counter-balance vendor costs. Over time he’ll monitor the two, looking for correlations that may require his intervention. If, for example, vendor costs do decrease but he also sees a decline in customer satisfaction he can hypothesize the two are correlated and use this information to possibly reconsider targets for vendor cost reduction. Maybe the initial target was too aggressive, leading to a degradation of the services provided to his customers.

When we create a Scorecard we’re attempting to tell the story of the organization’s strategy. Just as a story in a book or film is made up of distinct chapters or scenes, what really brings it to life and makes for a satisfying and compelling story is the way the individual components weave together. The same goes for the Balanced Scorecard. While the individual metrics appearing on a Scorecard are vital indicators of success, their greatest value comes when we look at them in concert with one another.

In most writing on the Balanced Scorecard you will find substantially less ink devoted to the Financial perspective than to the Customer, Internal Process, and Employee Learning and Growth dimensions. This is certainly not a surprise to people familiar with the Scorecard model, as it was created with the goal of supplementing lagging financial measures of performance with the drivers of future financial success.  Anyone who has worked in the field of business has undoubtedly been exposed to the standard toolkit of financial metrics, but what drives financial success is often a mysterious black box of many possibilities. Thanks to the Scorecard system with its inclusion of non-financial perspectives of performance firms are in a much better position to solve the value-creation mystery, and discover what does in fact drive future financial results.

Over the years I’ve reviewed countless Scorecards and can say unequivocally that the Financial perspective is home to the most commonly used, least differentiated set of measures, none of which will be unfamiliar to you: Revenue, growth, profitability, return on sales, etc. As noted above, this is to be expected as the Financial perspective is home to the lagging measures that detail how success in the other perspectives impact the bottom line. While financial yardsticks of performance are typically the most widely known and available, I believe most organizations are under-utilizing this perspective of performance in conveying their true economic success.

Most private sector organizations operating in a competitive environment consider results from the Financial perspective to represent the ultimate arbiter of absolute success. The key word in that last sentence is absolute. The measures they employ provide an outstanding view of the company’s absolute performance, meaning the actual dollars in sales they’ve generated, exact percentage of growth, precise ratio of profits to sales, etc.  What they don’t tell us, however, is how well the firm has performed relative to its competition.

Michael Porter reminds us repeatedly that “Competitive advantage is a relative concept[i] meaning that results must be stacked up against those of other companies operating in the same industry who face a similar competitive environment. Without this comparison, absolute performance is meaningless. If your company achieved sales growth of 20 percent last year that might be cause for cheers and back slapping all around until you learn that your key competitors all surpassed 30 percent. Knowing that, you quickly realize how much economic value you’ve left on the table.

What we’re ultimately attempting to capture in the Financial perspective is a verdict on the company’s success in achieving competitive advantage over its rivals. Since most companies track only their absolute performance on financial yardsticks, they’re unable to gauge their success when judged against peers. I would argue that virtually all financial metrics must be compared to industry averages or other key benchmarks in order to prove effective in judging competitive success. So, rather than raw sales growth, you would calculate sales growth percentage versus the industry average. Instead of Return on Equity, it’s return on equity versus the industry average. Perhaps the most important metric in this perspective will be Return on Invested Capital (ROIC). This fundamental measure examines a company’s profits versus all the funds it has invested to generate those profits; both operating expenses and capital. Returning to Porter, he cogently argues this is the only metric that reflects the true economic purpose of every profit-seeking enterprise: to produce goods or services whose value exceeds the sum of the costs of all the inputs, thereby ensuring resources have been used effectively. And once again, to ensure efficacy, ROIC should be compared to others in your industry.

We must never lose sight of the fact that for-profit businesses are attempting to achieve competitive advantage that leads to superior profitability. All industries have defined ‘profit pools’ and therefore, it’s vital that when assessing financial results we do so in the context of performance versus rivals. Only then does a firm possess a true and meaningful picture of the competitive advantage it does or does not enjoy.

 


[i] Joan Magretta, Understanding Michael Porter (Boston, MA, Harvard Business Review Press, 2012).

Last night, around 2 am, my wife and I were awakened from our slumber by a beeping sound. It probably took two or three beeps to register, then we were both awake, and irritated enough, to realize it was repeating in a pattern. This wasn’t some rogue electronic device chirping out a random message, but an annoying and consistent message, requiring attention. Groggy as we were, we soon realized the culprit: a smoke detector battery that needed, no it demanded, to be changed. Have you ever noticed these things always decide to go off in the middle of the night?

After the inevitable waiting game, each of us hoping the other would take care of it, we gave in, stumbled out of bed, and went in search of the incessant beeping. On the way down the hall a thought slowly began to make its way into my consciousness, no small feat considering both my brain and body were protesting this unwanted intrusion into my sleep. The thought became clearer and more resonant until I said out loud, “This is a catalytic mechanism.” My wife responded with about as much enthusiasm as a marble statue of her might, so I repeated my somnolent insight: “This is a catalytic mechanism. The smoke detector!” The beeping continued but I was oblivious now, totally absorbed by my stunning discovery. As we located the beep and my wife secured a fresh battery, I continued: “The smoke detector going off like that forced us into action. There was really no alternative – we had to get up and change it or suffer the negative consequences, in this case being robbed of a good night’s rest.”

Of course catalytic mechanisms don’t just apply to late night battery changes. Jim Collins, who originally wrote about this topic several years ago, believes they are crucial for any organization that wants to move beyond bureaucratic exercises in pursuit of their goals, and described them as the ‘crucial link between objectives and performance.’[i] They can take many forms but the common denominator is a process or procedure that forces people to take direct action in pursuit of an important objective. Collins cites the case of Granite Rock, a California company that supplies materials and products to the construction industry. When you think of a rock company, and really who isn’t constantly doing that, I doubt you conjure up images of world-class customer service. But service at a level exceeding what you might expect at Nordstrom was exactly what the leaders of Granite Rock proposed to achieve. To do that they could have written vision statements, created an exciting communication campaign, or devised some complex service initiative, but in the end they chose one simple process; short pay. At the bottom of every invoice the company issued appeared a note reading: “If you are not satisfied for any reason, don’t pay us for it. Simply scratch out the line item, write a brief note about the problem, and return a copy of this invoice along with your check for the balance.” This is a truly catalytic mechanism. Any time a customer chooses not to pay the entire invoice amount it propels Granite Rock into action, digging deep to discover why the customer chose not to fully pay, and doing everything in their power to fix the problem to ensure it doesn’t happen again. Employees are provided with a crystal clear signal that anything less than world-class service won’t be tolerated.

It takes courage to initiate a catalytic mechanism because a well-constructed version will possess sharp teeth and produce legitimate consequences for the organization should they consistently fall short. The upside, however, is worth the risk. A catalytic mechanism has the power to motivate entire organizations, wow customers, and create sustainable results. I encourage you to look at your own strategy and strategic objectives through the prism of a catalytic mechanism. What process could you put in place that would force you to move beyond the corporate rhetoric and turn your dreams into reality? What’s beeping in your world?

 


[i] Jim Collins, “Turning Goals Into Results: The Power of Catalytic Mechanisms.” Accessed on March 8, 2012 at http://caplix.com/pdf/Turning%20Goals%20Into%20Results.pdf

In a wide-ranging discussion I recently held with the senior strategy officer of a midsized organization the conversation eventually made its way to their Board of Directors. I asked how involved the Board had been in their Balanced Scorecard. “Not at all” this person replied. That response didn’t come as a great surprise to me as most organizations choose, rightly, to create strategy and their Balanced Scorecard themselves, seeking Board insight and approval afterwards. But what came next did surprise me, a great deal.  I asked: “Did your Board receive any training on the Balanced Scorecard so they could use it effectively to gauge your strategy execution?” With no hesitation this executive responded, “No. They would think that was beneath them.” As someone who makes their living facilitating, writing, and speaking it’s not often I’m unable to mount a reply to a comment, but this shocking response rendered me speechless. Let’s review one primary responsibility of any Board to see why no member should ever consider Scorecard training “beneath them.”

Boards serve multiple functions, but perhaps their chief responsibility is approving and monitoring enterprise strategy. As noted above, the Board typically doesn’t engage in creating the organization’s strategy, that’s the province of the senior executive team, led by the chief executive officer. However, to fulfill their oversight role, Boards they must understand and approve the strategy, then continually monitor management’s execution efforts. Based on the findings of a study performed by global consulting firm McKinsey, effective monitoring is often easier said than done. The researchers discovered that a whopping forty-four percent of directors don’t fully understand the drivers of value for the organization on whose Board they sit. Without that knowledge it’s impossible to provide meaningful insights and advice, the very reason members were selected in the first place. Enter the Balanced Scorecard.

Around the globe, thousands of organizations have turned to the Balanced Scorecard (and other measurement-related systems) to isolate the value-creating mechanisms of their strategy by identifying measures that translate strategy into meaningful action. One of the many benefits of using the Balanced Scorecard is providing the Board with powerful metrics that distill the essence of the organization’s strategy and clearly indicate what drives value for customers and shareholders alike. Armed with that knowledge, Board members can draw on their substantial reserves of knowledge and experience to actively participate and provide the counsel every management team requires. But as any practitioner will tell you, the Scorecard is more than an ad-hoc collection of measures scattered across four perspectives. The true value of the framework lies in the ability to connect the measures in a strategic narrative, understanding how they weave together, across the related perspectives. For a director to contribute meaningfully to an organization’s strategic dialog, they must first understand the intricacies and subtleties of the Scorecard model. If to them a Scorecard is simply a group of bucketed metrics, they will never derive the benefits possible from the tool, and are likely to squander much of their own potential value to the organization. Any Board member who takes their responsibility to the organization seriously, and respects their fiduciary duties, should never consider Scorecard training beneath them. To the contrary, they should encourage and embrace the lessons, as they will allow them to better serve their vital role in corporate governance.

Before the first workshop with a new client I meet with the organization’s CEO or Executive Director to share with them the purpose of the event, outline my approach, and review their role in helping the group achieve its desired outcomes. Although every individual is different, I’ve witnessed a remarkable commonality among the responses I receive from CEOs when discussing that last point, their role in the meeting. “Don’t let me dominate” is their universal refrain, followed quickly by “I need to hear what other people have to say.” On certain occasions such a caution is in order as some leaders are prone to monologue marathons that can rapidly suck the energy from the room, leaving others wondering why they were asked to attend in the first place.

However, in most cases I find the opposite actually occurs – leaders are too quiet in the workshop. They sit back, a pensive look their constant companion, nod a lot, laugh when appropriate, but rarely offer their point of view. The desire to draw out the opinions of their team, seeking a broad spectrum of views is undoubtedly valuable and to be commended, but ultimately their reticence is at least as problematic as taking the meeting hostage by controlling the flow of dialog.

It’s an inevitable fact of organizational life that we all look to our leaders for cues. Therefore, when in a workshop or meeting, we find the CEO sitting back and offering no guidance or personal insights, other attendees can misinterpret that silence as a signal the chief isn’t engaged in the process. The leap of logic then continues to: If he or she isn’t engaged, then the meeting probably isn’t that important. And culminates with: if it’s not important, why am I here, when there is plenty of ‘real work’ stacked up at my desk right now?

At the end of the day, the CEO is there for a reason – to make the difficult decisions. Taking the counsel of well-informed subordinates, and listening to a diverse array of opinions is sure to lead to better decisions and improved buy-in from everyone, but when push comes to shove leaders must illuminate the organization’s path forward. I’ve had the privilege of seeing brilliant CEOs in action over the years, and one of my favorites was a gentleman who mastered the delicate balance of seeking input from others but always making a firm commitment based on his own knowledge and beliefs. In meetings this man, a brilliant individual by any account, was always attentive, asked seemingly simple questions, showing his vulnerability, but never failed to lend several insightful comments to the discussion. When it was time for a decision to be made he summarized the key points raised to ensure he was accurately portraying the opinions that had been presented, then proceeded to lay out the rationale for his decision. You were free to challenge it of course, constructive conflict was always welcomed, but when it was time for action he accepted responsibility and issued the final word on the subject.

We’re all leaders in some capacity. Lets remember that our challenge in that role is to seek the opinions of others, stimulate dialog on issues, and when the time comes always be willing to step to the forefront, accept responsibility, and perform the leader’s ultimate task – making decisions.

In many ways I believe the essence of strategy lies in the choice of a singular value proposition, or determining how you will balance your resources across the spectrum of choices. What is a value proposition? It’s the determination made by any organization of how they propose to create or add value for their customers. It helps answer the question: “Why would people buy from or work with us?” Traditionally, three choices have been available: Low Cost (through operational excellence), Product Leadership (supplying the best product or service through innovation and technological superiority), and Customer Intimacy (best value derived from outstanding service and relationship building).

Most for profit companies immediately grasp the relevance and importance of making this choice, accustomed as they are to waging strategy wars with their competitors. However, with public sector agencies the notion is often rejected on these seemingly show-stopping grounds: “But our ‘customers’ have no choice, they have to deal with us.” But is that really the case? Do we as customers of government agencies have no choice? I’d suggest it’s not the case, and argue that all customers of government agencies do have a choice.

Recently I worked with a Compliance and Enforcement group within a State government agency. When the question of value propositions was raised the “no choice” flag was quickly raised and the conversation seemingly halted. But one person in the group protested and suggested customers do have a choice; in their case the choice was whether or not to comply with regulations. He argued that in the end customers may decide not to comply with state regulations because the experience or cost of dealing with the authority simply outweighs the burden of any possible penalty.  Based on disappointing encounters in the past, customers may consider the state’s products to be outdated or inefficient, and declare the hassle factor is too high to warrant compliance. The lack of a compelling value proposition translates into substantially less revenue for already depleted State coffers.

This veteran of public service went on to suggest that if government agencies were willing to explore the value proposition idea and choose one, or a balance, that fit their environment, they could transform the customer conversation. Declaring a value proposition means critically examining everything you’re doing through that lens and ensuring all products and processes are consistent with your chosen direction. With products, experiences, and costs transformed, customers will choose to do business with the authority because the benefits now outweigh the costs. If you’re in the public service, I urge you to take a cue from this intrepid colleague, begin assessing your value proposition today, and remember that all customers do have a choice.

One of the basic tenets of change management is that over time people and institutions tend to become ‘frozen’ in their ways of doing things.  Frozen in the way they think about customers and markets, about which products and services to provide, and in how they treat each other (their culture), among many others. Of course it happens in our personal lives too – when was the last time you changed the toothpaste you use or took a different route to work?

In order to bring about meaningful change, most experts suggest you’ve got to ‘unfreeze’ people’s thinking, make them aware of new truths, institute the necessary changes, and ‘refreeze.’ Sounds a little clinical and Total Recall-“ish” but in reality it’s sound and logical.

This frigid thinking can impact your use of the Balanced Scorecard, a phenomenon I believe is on the rise due to the Scorecard’s popularity and, by business tool standards, enviable tenure. Here is a case in point. Recently I’ve been speaking with a company that adopted the Balanced Scorecard over ten years ago, and have been using it faithfully ever since. The organization turned to the tool in an effort to assist them in executing a new customer-driven strategy, one that required substantial changes to their processes, investments in new technologies, and of course updated skill sets in their employee base.  Like thousands of other organizations they found the Scorecard to be invaluable in paving the way to successfully unlocking the value of their strategy, and as noted above, they’ve been devoted advocates since that time.

Fast-forward ten years and the world is a different place, replete with changes that have impacted companies around the globe, including this one. Somewhere along the line their customer-focused strategy gave way to a new commitment to cost leadership, an economic reality in a market that was moving quickly towards commoditization. What they neglected to do was substantially change the Scorecard’s core elements to be consistent with their new direction. So, while they’ve remained committed to the Scorecard, its benefits have waned over the past few years and managers are openly voicing their doubts about the tool’s ongoing efficacy.

This is a company that clearly needs to ‘unfreeze.’ The Scorecard they instituted years ago is no longer a proper representation of the organization’s strategy and there is little wonder that managers, hungry for every strategic advantage good information provides, have lost faith in the tool. To continue benefiting from the framework they’ll have to carefully reconsider how it fits with their new strategy, and how its core elements must be updated in order to reflect current realities. This, of course, may be painful because it will undoubtedly mean selecting new objectives, measures, targets, and initiatives, and in an even more painful step, possibly unhinging mature links between the Scorecard and vital organizational processes such as budgeting, compensation, and employee reviews. However, if the Scorecard is to continue producing benefits, this has to be done.

Occasionally I’ll hear dire predictions about the future of the Balanced Scorecard. “It’s an old model whose time has come and gone” people will say, “It’s so 1997” they’ll cry. But I believe, as I’m sure you do as well, the fundamental principles that underlie the Scorecard framework are indeed timeless and it will continue to guide the strategy execution efforts of enlightened companies for decades to come. We simply need to constantly assess our use of the framework and ensure it reflects the world in which we live and work, avoiding the trap of frozen thinking.

Now if you’ll excuse me, I have to go toothpaste shopping.

In the Performance Management and Balanced Scorecard worlds we often highlight the value of leading indicators of success. An effective system should contain a mix of lagging and leading measures if the organization wishes to get a true gauge of performance. The so-called ‘leading indicators’ are measures you feel hold predictive power and have the ability to drive or lead to the success of longer-term lagging indicators. For example, tracking the number of hours spent with prospects could be a leading indicator of future revenue, a classic lagging measure. Market share, an important, but ‘lagging’, indicator for many businesses is often driven by the leading indicator brand awareness.

Recently I came across a novel, but entirely relevant and modern, application of leading indicators in the television advertising industry. Historically the popularity of TV shows has been measured by simply counting viewers, with the venerable Nielsen ratings constituting the industry measurement standard. Advertisers with the means would naturally gravitate towards the programs with the highest number of viewers.

However, in today’s buoyant market advertisers looking to seize value have turned to new metrics in order to evaluate which programs are actually the most popular with viewers. One key metric, which we could easily categorize as a leading indicator, is social media buzz attached to a program. Sophisticated tracking devices allow advertisers to count mentions on Facebook, Twitter, and other social media venues, providing a more sophisticated assessment of a program’s current popularity and future potential. The findings are often enlightening in an industry where billions of dollars are in play each year. For example, the ultra popular “Glee” is ranked number 55 by number of viewers, but when social media activity the show generates is taken into account it rockets to number 2. Antony Young, the President of ad buying firm Optimedia notes that “Mentions of programs on Facebook and Twitter increasingly spur people to watch them (the shows).” In other words, social media buzz is a leading indicator of future viewers. This information is vital to advertisers who naturally wish to ensure their products and messages are associated with the most relevant and popular programs.

A performance management system that contains only end of period, or lagging metrics is missing the crucial element of how we expect to drive future value, the predictive measures we feel are vital in generating strategic success. Thus, an important question to ask when creating a performance management system, or in assessing its value, is: What are the leading indicators we believe will propel our future success? None of us possess a magical crystal ball that allows us to see the future with perfect clarity, but the exercise of critically examining your business and hypothesizing about which activities are key to driving future value demands a richer assessment of your situation and will generate benefits in enhanced knowledge, and often, enhanced results.

Notes:

Emily Steele, “New Tools for Picking Hits,” Wall Street Journal, May 23, 2011.

So who is Zenyatta, you ask? Quite simply, she is one of the greatest racehorses of all time, compiling an astounding record of 19 victories in 20 starts against some of the best equine athletes in the world. Her lone defeat was suffered in her final race, last year’s running of the Breeder’s Cup Classic, one of the most prestigious races on the calendar. Zenyatta retired after the race to a quiet life in rural Kentucky, but while she may have retreated from the limelight, she’ll never be forgotten.

Recently the television news magazine 60 Minutes aired a segment on Zenyatta, chronicling her historic career, highlighting her achievements and repeatedly noting her iridescent personality. The interviewer asked her trainer, John Shirreffs, about his style around the barn, wondering if any of his managerial traits could have an impact on the success of his equine charges. Shirreffs response was very revealing, and I believe quite relevant for organizations as well. “There can’t be any stress in the barn,” the trainer emphasized. “Horses have enough stress with their training, so we don’t need to add to it.” To ensure low levels of stress he highlighted the importance of communication in running a successful horse operation. For communication to flow freely through all levels of the organization – in this case from the groom who bathes the horses all the way up to the trainer and owner who make strategic decisions – people have to feel comfortable in sharing information and working together. Shirreffs and his team work hard to put in place the conditions that lead to open sharing of information and honest communication, thereby lowering the stress of everyone involved, including the horses.

Think about your organization. Do you foster an environment of open communication, one in which stress is minimized because people feel comfortable sharing their opinions and views, even when those views may differ from your own portrait of reality? To varying degrees, we all carry a certain amount of stress as we go about our daily tasks. And some stress is actually beneficial, for example that extra boost we feel when completing an important task just before the deadline. But for many people stress has become toxic, literally poisoning their ability to effectively do their jobs. To combat this organizational venom take a page from John Shirreffs’ book and put in place practices and conditions that promote communication, allowing everyone to share their thoughts in an environment not of judgment, but learning.

A good starting point is to simply identify and objectively challenge your assumptions on important aspects of your organization. If an employee doesn’t agree with your stance on a key plank of the company’s strategy, for example, put yourself in his shoes and attempt to genuinely understand his point of view before steamrolling him with your own conclusions, thus reinforcing the old stereotype that only those in power yield any influence. Listen to your team, and instead of nodding your head as if to say “I hear you,” subject yourself to the more demanding test of stating their case for them. If you can clearly articulate your team’s argument, using your own language and not simply parroting their words, you’ll demonstrate that you’re able to see things from their point of view. Then, even if you must choose a different course, you can confidently explain why your direction is necessary. Your employees may not initially agree with your stance but they will respect you for having the integrity of understanding their point of view.

Last week I had the great pleasure to speak at the 2011 Balanced Scorecard Forum in Dubai. It was my first trip to the Emirates and thus my first direct exposure to the business environment in that corner of the world. Going into the event I was very curious about the state of the BSC in the Middle East – was it embraced by private and public sector organizations? Were they discovering its benefits, were they applying it in new and novel ways to match their unique situation? The answer to all of these questions was a rousing yes.

My presentations were greeted enthusiastically by an audience eager to discover more about the tool and how they can apply it to ensure they execute their strategies. Beyond interest and enthusiasm for the framework I noticed a great willingness among the delegates to share stories, challenges, and successes with their fellow practitioners. During one particularly lively lunch discussion our table delved into linking the BSC with compensation, aligning with budgets, and the always tricky question of measure weighting, among many other relevant topics. It was exciting to witness the knowledge-sharing and passion the subject of Balanced Scorecard inspires in an audience committed to making their businesses better tomorrow than they are today. My trip to Dubai concluded with an interview for a local television station, again demonstrating the great interest in the topic. If you’d like to see the interview, please click the link below.

I have been philosophizing over this question for a long time. As a manager of a software company I am thinking of our annual plans and how we are going to execute our strategy. Is it possible to update the strategy more than once a year? What about every half year, or even quarterly or every month? What really determines when to update your strategy and try something really different? Is it the calendar? Or is it some other factors?

Corporater is a software company and we will stick to that for a long time. But as time goes by we are constantly changing our priorities. It is important for us as a company to have this flexibility.

Opportunities arise and we have to take decisions if we will pursue them or not. We are constantly looking for the opportunities that will bring our company to the position of “the world’s leading EPM software provider”. Of course, you can make a plan, collect investor money and grow your company with investors’ money. But Corporater has grown from zero to become a substantial player in the EPM market organically. We intend to continue to do so. So given this position it is important that we look for the good opportunities and pursue them when they come.

Over the years we have developed new software modules, entered into new markets, OEMed our solutions – all based on opportunities that we did not foresee in our plans. We always have an open mind on what we do; we constantly look for opportunities, evaluate them and go for the good opportunities that we are able to execute with positive energy. As the founder of the company, I am well aware that “opportunities are the entrepreneur’s biggest enemy”. But you will have to find a balance and grab the opportunities as they arise, search for more opportunities that are out there, and not let your annual strategy plan hinder your growth. So, don’t go by the calendar – go by how sound opportunities present themselves.

Research suggests that strategic planning is perhaps the most widely used managerial tool, with close to 90 percent of all organizations developing plans. However, McKinsey recently noted that less than half of organizations are pleased with the strategic planning process, and under a quarter make major decisions within its borders. There is little doubt that for many firms, the strategic planning process is broken. But why is that?

I believe one of the causes of this strategic disconnect is the tendency for organizations to focus on, and sometimes become obsessed with, very tactical and specific questions about how their business operates, without first determining what their business is all about – the fundamental strategic priorities that underpin all decisions.

Each and every day there are decisions to be made, choices to reckon with, and all of them appear more urgent and important as competition and the velocity of change increase. But how do we ensure the decisions we make are the right ones, and truly reflective of both our identity and priorities as an organization?

A Solution

In my book “Roadmaps and Revelations: Finding the Road to Business Success on Route 101” I define strategy as “The broad priorities adopted by an organization in recognition of its operating environment and in pursuit of its mission.” These broad priorities are determined by answering four fundamental strategic questions:

  1. What propels us forward?
  2. What do we sell?
  3. Who are our customers?
  4. How do we sell (our value proposition)?

Answering these questions creates a foundation of strategic choice, which then serves as a filter or ‘decision-engine’ to answer more tactical strategic questions.

In Practice

Let’s put this into context. A financial services firm attempting to differentiate itself from its many competitors may be grappling with questions such as these

  • Do we need a new customer relationship management software system?
  • Should we have automated branches?
  • Should we invest in social media?

The company may have considered dozens of other strategically important questions as they attempt to find a defensible strategy. But, have they been able to answer these and other questions with confidence and conviction?

My assertion is that you must follow a sequence when developing and executing strategy. Before you can answer specific questions like those presented above you must agree upon the fundamental or broad priorities of your business, as represented by my four questions. Take for example, “Should we have automated branches?” This requires context in order to be answered successfully, and that context is provided by your responses to the fundamental questions. Before deciding whether or not to have automated branches it’s crucial to determine what your product and service focus will be. Will that mix be amenable to an automated branch environment? Similarly, your customer focus must also be considered prior to answering this question. Will automated branches meet the requirements of your targeted customer segment? And of course, how will automated branches impact your chosen value proposition? If you believe customers come to you because of your outstanding personal service, then automated branches may be a direct violation of that value proposition.

Organizations must focus first on the broad priorities of their business, so that going forward they will be able to make more informed decisions regarding the strategic choices they face. It’s possible that questions of a tactical nature may come up during their discussions of the fundamental priorities but it’s vital that they ‘table’ those or use them to help answer the larger questions. Remember, the initial purpose of strategic planning is to lay the foundation of your strategic process, not address specific operational issues or challenges. Coming to consensus on your broad strategic priorities will not only enhance alignment among your team but also provide the basis for making improved and more timely decisions on the many strategic choices you face each day.

In the past I’ve written about the problems that can occur when organizations developing a Balanced Scorecard don’t agree on the terminology they will employ during the process (see: “The Importance of Terminology to Your Balanced Scorecard” at www.senalosa.com). Confusing the definitions of standard terms can lead to conflicting messages, puzzled employees, and a good deal of skepticism regarding the entire implementation.

While the effects of this nasty tendency have been apparent to me for years, it was only recently that I learned one reason why it may be so common within organizations. At the root of the problem is a phenomenon psychologists term “closeness-communication bias.” Simply put, the theory suggests people commonly believe they communicate better with close friends than with strangers. The belief is based on the assumption that a well-known acquaintance is in possession of the same information the speaker has, eliminating any need to provide a longer, more detailed explanation. Their shared history creates a sort of assumed shorthand, removing the necessity to fill in any blanks that may actually stand in the way of true understanding. As one researcher put it, “Our problem in communicating with friends and spouses is that we have an illusion of insight. Getting close to someone appears to create the illusion of understanding more than actual understanding.”

The bias can lead to wildly inflated estimates of the ability to successfully communicate. In one simple example, researchers worked with spouses who believed they shared a solid communication footing and were always ‘on the same page.’ To test this belief the researchers asked one spouse to utter a common term such as “it’s getting hot in here’ to determine if their partner was more adept at interpreting their meaning than a stranger. While the spouse uttering the phrase may have simply been suggesting the air conditioning should be switched on, the other frequently translated it as an amorous advance. As it turns out, accuracy rates for spouses and strangers were statistically identical in the study.

The research I found on this topic was restricted to close friends and spouses but it seems logical to imagine the same pernicious effects could plague communication within organizations. Co-workers are in close proximity to one another for long periods, have a shared corporate history, and undoubtedly make assumptions about the amount and type of information possessed by their bosses, peers, and subordinates. In this context we can easily imagine a manager charged with communicating a new strategic direction to her team omitting subtle yet important points based on her faulty assumption that the team is in possession of the same base level of information. When team members begin to make decisions that aren’t consistent or downright contrary to her intentions, confusion and frustration are quick to appear.

To increase the odds for successful communication with your peers simply ask yourself what you’re assuming when you share information. How much do they really know? Could they possibly have knowledge on the subject that you’re currently lacking? The small investment you make in lengthening your conversation will pay significant dividends in enhanced understanding and ultimately better results for all.

I don’t know if it’s a sudden thirst for knowledge or a classic midlife crisis, but recently I’ve become very interested in cars. Not just a typical urge characterized by the purchase of a sleek new sports car, but instead I’ve cultivated a desire to learn how cars work. Why do the brakes take us from sixty to zero in a few seconds? How exactly is power delivered from the engine to the four wheels? These and many other questions appeared seemingly from nowhere and I was suddenly gripped with a desire to answer them.

To assist in my quest, I bought a ‘project’ car, one I felt I could learn with and then enlisted the aid of a good friend who is a car junkie, the kind of guy who frequently wears a t-shirt that says, “Will Talk Cars With Anyone.” We decided on our first project and in anticipation of our work I read portions of a how-to book, watched a few videos online and convinced myself I was well prepared. The appointed day arrived and we assembled in the garage, popped the car’s hood, and my friend handed me a wrench. I eagerly bent over the engine, paused, and was suddenly overtaken by the sinking feeling that I didn’t have a clue what to do.

After reflecting on this sorry incident I realized the same thing occurs with organizations implementing the Balanced Scorecard (or any other change-related activity for that matter). They get excited about the prospects of developing a Scorecard, are tantalized by the many promised benefits, and decide the time is right to dive in. Some of the more enthusiastic participants read parts of a book on the Scorecard, peruse articles on the internet, and may even join an online forum or two, exchanging opinions with other devotees. With that training completed, they feel they’re ready to take on the Balanced Scorecard challenge.

They bring their team together for the initial Scorecard workshop, and then, when it comes time to create the tool, they’re just like me looking over the bewildering labyrinth of hoses, pumps, and blocks in my engine compartment. Instead of a wrench in their hand, they’ve got a scented marker and are standing in front of an empty flip chart wondering just exactly what they’re supposed to do next.

It doesn’t matter whether it’s car repair, implementing the Balanced Scorecard, or becoming adept at origami – interest, reading, and hope only get you so far. Granted, all three are necessary, but they’re definitely not sufficient. When pursuing any meaningful endeavor we must demonstrate an ongoing commitment to it, and that includes study, practice, and the realization that resources – both human and financial – must be allotted to the project if we hope to succeed.  That’s where many Scorecard implementations go wrong. The organization possesses the requisite interest in the tool, they do some cursory research, but they lack the discipline to commit resources to the engagement on an ongoing basis. Again, it’s no different than my desire to understand the inner-workings of my car – I thought the cursory scan of a book, some YouTube videos, and a sincere desire would transform me into a mechanic. Not so. It takes time and an ongoing commitment to the task at hand. In my case, I needed to roll up my sleeves and spend a lot more time getting my hands dirty if I expected to really unlock the secrets of how my car works.

There is no shortage of advice out there on how to make the Scorecard work in an organization. I should know, I’ve written three books on the topic myself. But if you want one simple, sure-fire piece of advice on how to virtually guarantee a successful Scorecard implementation, it’s this nugget, based on the lesson above: Be willing to commit resources to the tool on a prolonged basis. Simply assembling a team, crafting a set of objectives and measures and expecting the benefits to magically appear isn’t realistic.

To get the most from your investment, you must designate a person or group as responsible for shepherding the Scorecard through your organization. This person or team will take the time to truly understand the concepts underlying the Scorecard, have the skills to facilitate its creation, and possess the ability to weave the many links necessary to imbed the Scorecard into the fabric of your organization. This deeper bed of knowledge equips your organization to overcome the inevitable obstacles that appear in any change activity and ensures you possess what it takes to sustain momentum for the long-term. And when it comes to the Scorecard you should be committed to the long-term, making strategy execution a focus of every employee.  Follow this advice and you’ll take your Scorecard implementation from zero to sixty in no time at all – speaking of which there’s a car in the garage that needs my attention.

I’ve been in the ‘business world’ in some form or fashion now for close to thirty years – first as a student (graduating in 1986), then through my corporate career with an accounting firm, a manufacturing company, and a utility. The past twelve years have been spent writing and consulting on strategy and its execution with the Balanced Scorecard.

Back in 1982 when I began my university business studies all the ‘cool kids’ in class were toting copies of “In Search of Excellence,” the Peters and Waterman tome destined to become the first true business blockbuster and a must have on the credenza of every credible executive. I quickly discovered that the mere ability to parrot a few choice passages or tell the simplified tale of one of their exemplary companies awarded one with a certain cachet and prestige both in and out of class. Later, when I entered the job market, it was ‘Built to Last,’ then ‘Re-Engineering the Corporation.’ The most recent phenomenon was ‘Good to Great.’ There were many others as well. Sometime in the 1990s I also began a subscription to the Harvard Business Review, a relationship I have maintained for the better part of twenty years now. Of course, I’ve read hundreds of other magazines and studies over the years as well.

Reflecting back on all those many pages what stands out to me most are not the lessons imparted by the gurus of each successive age, but the repetition in the use of certain companies to ‘prove’ their particular theory of choice. It didn’t matter whether it was re-engineering, strategy development, Lean manufacturing, acquiring and keeping the best talent, or Enterprise Performance Management. Regardless of the principle in play the same companies were used again and again. When I was starting out writers were erecting statues in ink for the likes of Atari and Xerox. Later it was Enron, Toyota and Dell, and now the darlings appear to be (among others) Google, Amazon and Best Buy. To be perfectly honest, I’m tired of every second article or book I pick up having a title something to the effect of “Run Your (fill in the corporate necessity of the moment) like Google!

In his outstanding book, “Influence: The Science of Persuasion,” Robert Cialdini identifies social influence (or simply peer pressure) as one of six proven and reliable drivers of persuasion, regardless of the situation. Nowhere is this attribute more in play than in the business press. It’s as if business authors wouldn’t dream of even proposing their idea without the so-called proof of success at one of the companies in the spotlight at the moment. When I read these stories now I often find myself thinking, “I wonder if the people at Google or Best Buy even know they’re doing this?” Most of the time they didn’t invent the phenomenon in question. The authors have an idea, want to show its efficacy and feel the best and most persuasive way to do this is to link it with a successful company. That makes sense, but the problem arises when we put these companies on a pedestal for all of their innovative practices only to see them occasionally tumble in humiliating fashion. And tumble they do. Atari, praised effusively by Peters and Waterman, have been moribund since 1983. Dell has certainly had their share of troubles, as has Toyota, recently mired in a quality mess that’s seen their highly burnished reputation take a sizeable hit. And of course, don’t even get me started on Enron – once hailed “America’s Most Innovative Company” a stunning six years in a row by Fortune.

Amazon, Google, Best Buy and the others stars shining in the business galaxy today are unquestionably successful companies, but it’s both dangerous and unfair to emulate them with singular devotion and expect the rewards to suddenly rain down upon you. All of these companies perform a specific combination of activities that act together in a synergistic way to drive the execution of their strategies. If we could all copy everything they do, we would, but it’s obviously not that simple. Nor should you want to follow blindly what others do. There is an enormous gap between admiring and learning from a company versus trying to copy its success. It’s healthy and productive to learn from others, but you still need to apply a liberal dose of homegrown wisdom and know-how forged in the battles that shaped your unique culture if you hope to achieve success yourself.

In my strategic planning fable “Roadmaps and Revelations” one of the four fundamental strategy questions I offer to readers is “How do you sell?” which represents the company’s value proposition, or why customers choose to buy from them. The vast majority of organizations will choose one of three value propositions: low cost (an operational excellence model), best product (product leadership), or best relationship (customer intimacy). Making this selection is vital for any business in order to make decisions on everything from hiring to marketing to resource allocation. The choice of a value proposition also enhances Balanced Scorecard development by facilitating the creation of objectives and measures throughout the framework, particularly in the Customer and Internal Process perspectives.

When faced with this model some organizations insist they must excel at all three value propositions. Given today’s competitive realities this is an understandable reaction, but practically it can cause more headaches and confusion than benefits as companies attempt to be all things to all people and wind up instead offering mediocre service to everyone. Despite the challenges and potential pitfalls, I see more and more companies attempting to balance at least two value propositions. Case in point is the South Korean car company, Hyundai.

What did you think of when you saw the word Hyundai? Chances are you conjured up an image of a small, low priced car that provided good fuel economy but may be prone to problems. That would clearly represent a low cost/operational excellence value proposition. But Hyundai is attempting to change that. This month they’ll introduce the Equus, a luxury sedan with a price tag of around $55,000 U.S. dollars with industry titans BMW and Mercedes clearly in their sights.

Why is Hyundai jumping into the luxury market and competing directly with companies that possess decades of experience and success in the market? For a number of reasons: First, they appear to have overcome their quality woes. Once considered a trouble-prone brand, Hyundai is now a leader in quality surveys. Second, they have little room for growth in their core market of small, fuel-efficient vehicles. Their U.S. market share recently reached 4.7%, up from 1.4% in 2000 and to keep the growth engine revving they must reach a wider audience. Finally, the luxury market, despite dire predictions from industry experts, is actually growing faster than any other segment. BMW’s 7 Series sedans have seen a 44% sales leap, Mercedes E-Class is up 78%, and Audi’s A8 has spiked 34%. These lush ‘land yachts’ offer equally lush profits for manufacturers, a fact not lost on Hyundai’s senior leadership.

Producing a luxury sedan with a price tag north of $55,000, and outfitted with such bells and whistles as electric back massagers and a suede roof seems an unquestionable move towards a product leadership/best product value proposition. The innovative sales model Hyundai is pioneering with the Equus provides further evidence of that trajectory. Interested buyers won’t have to travel to a Hyundai dealership, brushing past $13,000 sub-compacts on their way to the Equus, instead a sales person will visit their home to demonstrate the car’s many features. Additionally, when service is required, a loaner car will be delivered directly to the owner’s home.

But will this strategic gambit pay off, and can the company balance two seemingly competing value propositions? If recent history is any guide, it may be a difficult path. Back in 2003 Volkswagen, another low-cost purveyor, introduced the Phaeton with a sticker of $68,000. Sales failed to take off and the car was pulled from the U.S. in 2005. Other carmakers, rather than attempting to master two value propositions in-house, have chosen to spin off separate brands with their own identity and clear value propositions. For example, Toyota created Lexus to offer luxury cars, rather than build under the Toyota nameplate that had a highly burnished image (until recently) of quality at a relatively low price.

The choice of a value proposition impacts virtually every facet of a company’s operations from manufacturing to distribution, to marketing and promotion to name just a few. The question for Hyundai, and all those companies attempting to pursue two value propositions, is how they will manage the tradeoffs inevitably necessary to achieve success with both. It should be an interesting ride.

Sources:

  1. Mike Ramsey, “Can Hyundai Sell Pragmatic Prestige?” Wall Street Journal, September 20, 2010.
  2. Vanessa Fuhrmans, “Land Yachts Launch Unexpected Revival,” Wall Street Journal, September 23, 2010.