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IN 1992, WE INTRODUCED the Balanced Scorecard as a performance measurement system. 1 We helped several companies implement this approach and learned how they used this performance measurement tool as the cornerstone of a new management system that would drive the implementation of their strategies.2 We spent the next several years refining the strategy management system and published our updated framework in our second book, The Strategy-Focused Organization. The framework was built around five management principles:...

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## Nội dung Text: THE EXECUTION PREMIUM

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2. THE EXECUTION PREMIUM LINKING STRATEGY TO OPERATIONS FOR COMPETITIVE ADVANTAGE Robert S. Kaplan David P. Norton HARVARD BUSINESS PRESS 80STON, MASSACHUSETTS eagleflyfree
4. -~----- CONTENTS vii Preface xi Acknowledgments 1. Introduction 2. Develop the Strategy 35 3. Plan the Strategy 69 4. Strategic Initiatives: Launching the Strategy into Motion 103 5. Aligning Organizational Units and Employees 125 6. Plan Operations: Align Process Improvement Programs 157 7. Plan Operations: Sales Forecasts, Resource Capacity, and Dynamic Budgets 185 8. Operational and Strategy Review Meetings 221 9. Meetings to Test and Adapt the Strategy 251 10. The Office of Strategy Management 281 Index 305 About the Authors 319 eagleflyfree
5. PREFACE IN 1992, WE INTRODUCED the Balanced Scorecard as a performance measurement system. 1 We helped several companies implement this ap- proach and learned how they used this performance measurement tool as the cornerstone of a new management system that would drive the imple- mentation of their strategies.2 We spent the next several years refining the strategy management system and published our updated framework in our second book, The Strategy-Focused Organization. The framework was built around five management principles: 1. Mobilize change through executive leadership 2. Translate strategy into operational terms 3. Align the organization to the strategy 4. Motivate to make strategy everyone's job 5. Govern to make strategy a continual process Our third book, Strategy Maps, expanded on Principle 2 by introduc- ing a general framework for translating a strategy into objectives that are linked, in cause-and-effect relationships, across the four Balanced Score- card perspectives: financial, customer, internal process, and learning and growth. The framework aligned processes, people, technology, and cul- ture to the customer value proposition and shareholder objectives. Our fourth book, Alignment, expanded on Principle 3 and showed how to use strategy maps and scorecards to align organizational units, both line business units and corporate staff ones, to a comprehensive cor- porate strategy. The organizational alignment enabled the enterprise to eagleflyfree
8. ACKNOWLEDGMENTS GREATLY from the experiences of the organi- WE HAVE BENEFITED zations that we cite in this book. Their ability to extend our ideas with so- phisticated applications is a true source of managerial innovation and progress. In particular, our thanks go to the following contributors: Bank of Tokyo-Mitsubishi Takehiko N agumo Borealis Thomas Boesen Brazilian National Confederation Jose Augusfo Coelho Fernandes of Industry (CNI) Canadian Blood Services Graham Sher, Sophie de Viller:;, Andy Shaw Federal Bureau of Investigation Dennis Richardson, Hillside Family of Agencies Maria Cristalli HSBC Rail Peter Aldridge KeyCorp Michele Seyranian, Lesa Evans Lockheed Martin Ed Meehan, Pamela Santiago, Richard Dinnan, Lance Freedman, Jeff DeLeon, Maria Rasmy, Josh Stalher Ron Wirahadiraksa LG Philips LCD John Rhodes, David Rix Luxfer Gas Cylinders Marriott Vacation Club Karl Sweeney International eagleflyfree
9. ACKNOWLEDGMENTS Xll Mark Hurlbert Motorola GEMS Nemours David Bailey Sven Edvinsson Nordea Oracle/Latin America Cheryl McDowell Sam IChioka, Brad Nelson, Ricoh Corporation Marilyn Michaels David Schwerbrock SAS International Merck Serono Roland Baumann, Lawrence Ganti Statoil Bjarte Bogsnes Jack Klinck State Street Corporation S. Srinivasan Thai Carbon Black Michael Arthur, University of Leeds Simon Donoghue We are indebted to the professional staff of the Balanced Scorecard Collaborative and the Palladium Group who, using these approaches, help their clients create execution premiums. In particular, we recognize Kit Jackson, who taught us how to use strategic themes for multiple strategy execution processes and provided invaluable feedback on an early draft of the book; Ed Barrows for his work on the strategy development process; Anne Nevius for her contributions to health care management; and Laura Downing for her contributions to the management of public sector orga- nizations and her constructive feedback as a reviewer of an earlier version of the book. Additional thanks go to Peter LaCasse, Michael Contrada, and Mathias Mangels for their work on initiative management; Cary Greene, Philip Peck, and Duane Punnewaert for their work on dash- boards, driver-based planning, and rolling forecasts; to our colleagues in Symnetics, Brazil-Reinaldo Manzini and Fanny Schwarz-for pro- viding examples of how to link strategy to operational process improve- ments; and to Andre Coutinho for his facilitation of strategy maps, scorecards, and strategic initiatives for Brazil and its provinces, such as Rio Grande du Sol. We would also like to acknowledge Randy Russell, who managed our group research programs; and Rob Howie and Linda Chow for their management of our Balanced Scorecard Hall of Fame program. Dennis Campbell, of Harvard Business School, showed us how to use analytics to design operational dashboards (the TD Canada Trust exam- ple in Chapter 6) and to test the causal linkages in a strategy (the Store 24 example in Chapter 9). The staff of HBS Press provided their usual excellent encouragement and support from the original conception of the book through its produc- eagleflyfree
10. xiii ACKNOWLEDG MENTS tion and delivery. We especially thank Hollis Heimbouch, who has been the editor for all five of our Balanced Scorecard books, Brian Surette, \\-ho took over the editorial role during the production process, produc- tion editor Jen Waring, and copy editor Betsy Hardinger. Finally, we are indebted to Steve Fortini, who prepared many of the complex graphics, and to our assistants-Rose LaPiana and David Porter- who managed the logistics of the writing, graphics, and production pro- cesses, and our wives, Ellen and Melissa, who tolerate our continued passion for writing at a time of life when many of our contemporaries are lower- ing their golf handicaps. eagleflyfree
11. CHAPTER ONE I NTRODUCTI ON "Strategy without tactics is the slowest route to victory. Tactics without strategy is the noise before defeat. "1 from managing operations. But MANAGING STRATEGY DIFFERS both are vital, and need to be integrated. As strategy authority Michael Porter has noted, "Operational effectiveness and strategy are both essen- tial to superior performance ... but they work in very different ways."2 A visionary strategy that is not linked to excellent operational and gov- ernance processes cannot be implemented. Conversely, operational excel- lence may lower costs, improve quality, and reduce process and lead times; but without a strategy's vision and guidance, a company is not likely to enjoy sustainable success from its operational improvements alone. Michael Hammer, a visionary leader of reengineering and process management, concurs: "High performance operating processes are neces- sary but not sufficient for enterprise success."3 A senior strategic planner at a Fortune 20 company reinforced Hammer's view: "You can have the best processes in the world, but if your governance processes don't provide the direction and course correction required to achieve your goals, success is a matter of luck." Companies generally fail at implementing a strategy or managing oper- ations because they lack an overarching management system to integrate and align these two vital processes. Consider the experience of Marriott Vacation Club International (MVCI), a wholly owned subsidiary of Mar- riott International, Inc.4 MVCI develops, sells, and manages time-share, eagleflyfree
13. INTRODUCTION 3 MARRIOTT VACATION CLUB INTERNATIONAL'S EXECUTION PREMIUM • Operating profit rose from $149.3 million in 2003 to$306 million in 2007, a 20 percent annual increase. • The number of customers rating MVCI as being "easy to do business with" rose 70 percent from the 2003 level. • Organizational alignment improved; the percentage of MVCI employees who reported that they understood the company's strategy and how their role contributed to it increased from 74 percent to 90 percent in 2007. The success that MVCI enjoyed by linking strategy and operations is replicable. Later in this chapter we present several case studies of other com- panies that earned an execution premium after implementing a new manage- ment system that aligned their strategic priorities with operational execution and feedback. We describe, in this book, the design and use of this new man- agement system for strategy execution. STRATEGY EXECUTION In a 2006 global survey, The Monitor Group asked senior executives about their priorities. Number 1, by a clear margin, was strategy execution. The Conference Board in its 2007 survey reported that executives' number 1 priority was "excellence in execution." After the number 2 priority, "sus- tained and steady top-line growth," strategy execution again appeared as priority number 3, "consistent execution of strategy by top management." Placing a high priority on effective strategy execution can be traced to the considerable and well-documented problems most companies have expe- rienced when attempting to execute their strategies. Various surveys over the past two decades indicate that 60 to 80 percent of companies fall far short of the targets expressed in their strategic plans. In October 2007, Tony Hayward, new CEO of BP, stated, "Our problem is not about the strategy itself, but about our execution of it."7 We conducted a survey in 1996 about the state of strategy execution. We learned that most organizations did not have formal systems to help them execute their strategies. Only 40 percent of organizations linked eagleflyfree