SFO part 3
Transcript of SFO part 3
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Background
� Much of the work done today is knowledge-based, not physical work.
� The challenge for organization today is how toenlist the hearts and minds of all theemployees
� BSC provides organizations with a powerful
tool for communication and alignment. Itfocuses the energies and talents of employeeson the organizations strategic objective
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Three processes to align employees to
the strategy� Communication and education
� Developing personal and team objectives
� Incentive and reward systems
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Creating Strategic Awareness
Chapter 8
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Background
� The changes in behavior required for aworkforce to execute a new strategy are fargreater than the changes required to get
consumers to try a new product
� The processes start with creating strategyawareness, strategy mindshare, strategy
loyalty, becoming a strategy missionary.� Top down communication, not a top down
direction
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The communication program
� Develop an understanding of the strategythroughout the organization
� Develop buy-in to support the organizationsstrategy
� Educate the organization about the balancedscorecard measurement and management
system for implementing the strategy� Provide feedback, via the balanced scorecard,
about the strategy
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Communications media
� The communication channel continuum from
rich channels to lean channels: One on one,
hallway, small group meeting, video
conferencing, telephone conversation,
voicemail, e mail, large group meeting,
handwritten personal notes, advanced copies
of agendas, faxes, interoffice memos, formalspeeches, letters, newsletters, reports
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Case studies
� Nova Scotia power
� The mobil experience: sustaining the
communication program� Motorola: New channels
� Sears: Learning maps
�Strategy trees
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Understanding the measures
� Understanding the strategy through extensiveand in innovative communication processes is theinitial building block for creating strategicawareness
� Managers should define clearly the measuresthat will be used to guide and monitor thestrategy on the scorecard and how the measureswill be calculated from underlying data
� Employees must understand the measures clearlyfor their decision and actions to affect thestrategy in the intended way
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Defining personal and team
objectives
Chapter 9
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background
� For strategy to become truly meaningful to
employees, personal goals and objectives must
be aligned with the organizational objectives
� MBO is different from BSC
� Methods from SFO: the super bowl approach,
alignment with strategic initiatives, integration
with existing planning an quality processes,integration with human resource processes, and
personal balanced scorecards.
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The super bowl approach
� A simple, clear, and focused set of measures andassociated targets for all employees
� It reinforced the new strategy and required little to no
education about the balanced scorecard concept tomake the measures and targets meaningful andactionable to frontline employees
� This approach does not exploit any local informationfrom middle managers and frontline employees forselecting measures and targets
� Fine for the first year implementation, and a relativelyhomogenous sales unit
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Alignment with strategic initiatives
� Government organizations tend to build their resourceallocation and control processes around programs, asthey are typically funded through authorized programs
� Programs provide the linkage from employees activity
to the agency mission� The workers had a context for their performance
measures
� This method clearly delineated the responsibilities of
frontline work teams� The program was so structured that individuals were
not left with much of a role for innovation and crossfunctional initiatives
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Integration with existing planning and
quality processes
� Senior management educated on TQM principles
� Point of arrival (POA) goals established at the
corporate level
� Balanced scorecard business plan for each region
to achieve POA targets
� Deployment through a Quality Improvement
Process (QIP) at each business unit and QualityPerformance Reviews (QPRs) for every individual
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� The system built upon the existing emphasis
on quality
�
It supplied employees with both intrinsic andextrinsic motivation
� District objectives were aligned with corporate
objectives and local success would contribute
to achieving corporate goals
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Integration with the human resource
process
� Establishing themes that linkages from financialobjectives to objectives in the customer, internal, andlearning and growth perspectives
�
Scorecard come alive by linking measures to specificemployee development and change programs
� Developing a new management structure to attract,develop, and retain the highly motivated and strategyfocused workforce required for the new businessstrategy
� The HR management structure developed a set of specific job families
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Personal balanced scorecards
� When individuals can construct their ownbalanced scorecards, then we have produced theclearest mechanism for aligning individual
objectives to business unit and corporateobjectives
� Fold-up personal scorecard: contains three levelsof information
� Individuals did not develop their local objectivesuntil they had a clear understanding of corporateand business units objectives
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The balanced paycheck
Chapter 10
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Background
� The final linkage from high level strategy to
day-to-day actions occurs when companies
link individuals incentive and reward
programs to the balanced scorecards
� The scorecards made explicit the tradeoffs
involved in implementing the new strategy
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Linking compensation to balance
scorecards
� Incentive compensation is a powerful lever togain peoples attention to company and businessunit objectives.
�
The linkage plays two important roles: it focusesemployees attention on the measures that aremost critical for the strategy and it providesextrinsic motivation by rewarding employeeswhen they and the organization succeed in
reaching their targets� The particular details of how to link incentive pay
to compensation differs for each companies.
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Study case
� Mobil north america marketing and refining
� Nova scotia power
�CIGNA property and casualty
� Winterthur international
� Texaco refinery and marketing, inc: noncash
compensation� Other organizations
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Effective compensation design and
implementation
� Some companies had yet to make the link toincentive compensation, but the reasonsrelated to lack of readiness, not opposition to
the concept� Several design issues arise when tying
compensation to the balanced scorecard:Speed of implementation, objective versussubjective measures, number of measures,team versus individual, frequency of updates
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Speed of implementation
� Being unconfident for choosing the measures
� Companies may not have good, reliable data
for many of the measures at the early stagesof their program
� Unintended or unexpected consequences
could result from how the targets for the
measures are achieved.
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Objective versus subjective measures
� Several executives stresses the importance of
having compensation-based measures be
more objective and outcome based, rather
than being measures of tasks and activities
� Many organizations tie commissions and
compensation to a customer satisfaction
measure which leads to dysfunctionalbehavior
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Number of measures
� A well-constructed strategy scorecard will not beas confusing as an ad hoc collection of two dozenmetrics such as might arise from a stakeholder orKPI scorecard
� The metrics derived from an integrated strategymap should reflect a single strategy with only twoor three strategic themes (e.g. revenue growth,cost reduction, and asset intensity)
� Employees can picture the cause-and-effectlinkages that integrate the different performancedriver and outcome measures
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Individual versus team
� Individual versus team metrics involve
managing several tradeoffs and tensions
�
Team-based rewards encourage cooperativebehavior and group problem solving
� The free rider problem can be mitigated in
environments of high-visibility where many
people can observe and evaluate the effort
and contributions of individual
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Frequency of updates
� While the basic strategy of the companies may notchange, the value proposition, internal processes,critical skills, and information technology required toimplement the strategy may have to undergo frequent
updates� Companies that anticipate frequent within-year
changes may wish not to link their incentive pay to amultitude of balanced scorecard measures in the fourperspectives
� Companies in rapidly changing environments can basetheir incentive pay on customer outcomes and long runfinancial performance