In today’s highly connected business environment, the pace of change is rapid and the pressure to keep up unprecedented. Business today is about visibility and responsiveness – the ability to change course fluidly to react to movements in the marketplace. Faster cycles of scrutiny on performance against expectations are increasingly demanded across tactical, operational, and strategic business measures to uncover potential risks.
Faced with the pressures of the economic downturn and the challenge of properly preparing for the upturn, executives from companies of all sizes and sectors are now, more than ever before, focused on their organization’s strategic priorities. These range from driving innovation and launching products to managing human and operational resources and increasing overall shareholder value.
Executives who are responsible for their organization’s overall strategy and associated business performance need a winning strategy to better leverage the myriad of information available to them to make more strategic decisions and gain competitive advantage for 21st century growth.
Business analytics significantly contributes to that winning strategy. A recent IBM study of 400 business executives finds that companies which use insights from analytics are weathering the economic storm better that companies that don’t. The study also revealed that top performing companies are 15 times more likely to apply analytics to strategic decisions than their underperforming peers.
Scorecards, a valuable component of any company’s business analytics toolbox, play an essential role in helping management teams make better strategic decisions for the future. Used within a formal framework for business performance, scorecards enable executives to manage strategy effectively and help management teams understand the relationships among business metrics. They also improve visibility into the ways in which performance in one area (for example, R&D;) affects outcomes in another (for example, Sales). These relationships are often visualized through a strategy map.
Balanced Scorecard is one type of business scorecarding methodology that’s used to measure a company’s business performance against strategic goals and determine whether its business operations are linked and aligned with its objectives, vision and strategy. When a Balanced Scorecard methodology is used in conjunction with business analytics, it’s possible to drive strategic decision-making across the enterprise.
In fact, in a recent Palladium Group survey of IBM clients, nearly two-thirds of those who reported breakthrough performance results, such as increases in revenue or positive shareholder returns, employed a Balanced Scorecard approach coupled with business analytics. A business performance strategy based on these elements can help a company’s leaders better link strategy to operations and ultimately achieve the kind of breakthrough business performance they’re looking for.
At the tactical level, employees and managers use scorecards to monitor performance against targets for discrete, specific projects. At the strategic level, scorecards are an integral part of a corporatewide business performance management system that executives use to map corporate strategy and communicate it throughout the organization. Executives who use scorecarding at this strategic level can better align decisions and tactics with overall goals based on their ability to access relevant information from all data sources to capture a view of the business across units, operating subsidiaries, and geographic regions.
The key is for executives to develop, at a minimum, a formal strategy management system based on a Balanced Scorecard methodology. For example, IBM client Mueller Inc. developed an award-winning Balanced Scorecard implementation using IBM business analytics software to accelerate information delivery; provide in-depth insight into sales, finance inventory and purchasing; gain fact-based analytic and decision-making capabilities; and improve customer sales and service. With a Balanced Scorecard methodology and the associated business analytics in place, Mueller’s management now spends more time on strategy and improving the business. Operations, sales and customer information can be accessed quickly and consistently and shared across the organization to improve results. The consequence for Mueller is better quality products, improved performance, and the ability to increase customer satisfaction.
In order to strategically execute business objectives successfully, like Mueller, companies must connect their long-term strategy to daily operations and identify required business process improvements in support of their strategy. This requirement means that managers must understand, document and manage their organization’s process architecture: the complete set of business processes that make up its business model.
To get started, here are five key questions executives must ask themselves to better understand their process architecture and management capabilities:
- Do we have an operational process model of the business?
- Have we identified the business process improvements that are most critical for executing the strategy?
- Have we linked the strategy with our operating plans and budgets?
- Have we aligned strategic initiatives with business processes?
- Have we established the IT platform needed to support management?
DESIGNING AND LEVERAGING STRATEGIC GOALS
Once the tough questions have been answered and managers fully understand the link between their company’s process architecture and business model, it’s time for executives to connect the dots between business decisions and tactics and align them with strategy. This can be achieved as follows:
- Ensure that the design and implementation processes are led by the executive team.
- Ensure that the scorecard is heavily integrated into the monthly management process. It shouldn’t be an occasional tool.
- Enlist a leader, such as a strategy officer, to own the process.
- Use the scorecard and associated strategy maps to communicate the strategy and the importance of each strategic objective.
- Tie incentive plans to achievement targets. This will improve the chances of people adhering to strategy execution.
- Move from using scorecards at the tactical level to driving their use at the strategic level as you measure performance outcomes such as strategy effectiveness, revenue growth, and profit.
The IBM client study conducted by Palladium Group discovered that “organizations that report achieving breakthrough performance as a direct result of executing their strategy and that report using the Balanced Scorecard (especially for three or more years) outperform other organizations in both strategy management and operational execution.”
All organizations are under pressure to manage risk, improve business processes, and be more accountable. Demands for greater transparency will only increase. Smart companies are building the systems now to gain time and cost efficiencies; make processes visible, repeatable, and accurate; and achieve greater control of company performance. By combining business analytics and strategy management methodologies, these organizations can effectively and transparently link their strategy to operations to pave a winning path to future growth.