The scenario of companies has changed, also their assets. Today intangibles occupy an increasingly predominant place, this implies that the indicators on which the business strategy of companies is based must be reviewed
According to a report from Fortune Magazine, nine (9) out of ten (10) strategies approved by the management of a company are never implemented operationally.
Why?
1) Because it is not communicated to all staff.
2) Because they are not aligned with the personal objectives of those who have to apply them.
3) Because the strategy is not linked to the long-term objectives of the company.
4) Because indicators of deviations or successes are not identified (lack of management control).
5) Because the key success factors are not defined.
6) Because the competencies of the personnel responsible for the execution of the plan are not evaluated a priori.
When companies have to define their strategies, they face two needs: on the one hand, define the strategy, and on the other, implement it. Defining it can be complicated, but implementation is where most find the greatest difficulty.
Since the time of the Industrial Revolution, in the 19th century, the financial control of companies has monitored the productive use of capital, through the return on capital employed (ROCE), ROI, EVA (economic added value) and Cash - flow. All the emphasis in the implementation of their strategies was on complying with the budget, and they privileged the monitoring of the financial factors and indicators of their company, which partially translate strategy into operational goals.
Some companies remained anchored in the past and still continue to use and prioritize these indicators today. The financial indicators are anchored in an accounting model that is already several centuries old and were thought for companies that valued physical assets, not intangibles.
Why are the financial indicators no longer reaching?
Because they are not enough to measure whether or not competitive advantages are being achieved. Those that today come from: Creating value for customers, creating value for intellectual capital, quality of service, quality of processes, technology and innovation.
Financial indicators are necessary, however they are insufficient. Because being immersed in the year 2000 we are clear about the existence of an intangible capital, which today is necessary to measure and which has as much or more value than the immobilized asset, this intangible capital is the intellectual capital contributed by the staff of your company, and the capital that clients contribute to your company.
Currently, one of the keys to achieving success is to broaden the prospects of your business, identifying new indicators for the future that allow you to evaluate the results of management in relation to your intangible assets by measuring the drivers of action. (performance drivers), which are what make it possible to know in advance if you are on your way to achieving the results you imagined when designing the strategy.
Knowing the company financially is very useful, but it does not make sense unless you understand where these results come from, if you do not know why the results were obtained, or what is worse, because they are not achieved.
In order to achieve sustainable competitive advantages over time, it is necessary, among other factors, to balance financial management with the company's intangible capital. Continuing to manage a company paying attention only to financial indicators today is suicide, since they only report what has already happened, they do not report the work environment of your company or the satisfaction of your customers or the quality of production of your products and services.
The implementation of a strategy is not a mathematical model integrated by formulas that is wonderfully fulfilled. On the contrary, to implement it you need the support of managers working as a team with all their staff, if they do not get involved the strategy will hardly be fulfilled.
To achieve successful implementation you need:
1) Share knowledge, so that the vision, values and strategy of the company are known and understood by all staff.
2) Double-loop strategic feedback, each one has to be informed to know the results of the strategy that he, from his job, is helping to achieve, in this way he will be motivated to continue aligned with it.
3) Financial and non-financial indicators, establish a strategic measurement system that reports the degree of progress of the strategy, if this information is lacking, only final results can be measured and with this the possibility of correcting on the fly is ruled out.
The Balanced Scorecard (BSC) - The Dashboard
Dr. Robert Kaplan, renowned Professor at Harvard University together with his partner David Norton, revolutionized the world of management with their BSC model by showing how it is possible to translate vision into action, through the Dashboard, organizing strategic issues through starting from four perspectives:
A) The financial perspective
Links the objectives of each business unit with the strategy of the company. It serves as the focus for all objectives and indicators from all other perspectives.
B) The customer perspective
Identify the customer and market segments where you will compete. Measure the value propositions that are oriented to customers and markets. Evaluates customer needs, such as satisfaction, loyalty, acquisition and profitability in order to align products and services with their preferences. It translates the strategy and vision into objectives about customers and segments and it is these that define the marketing, operations, logistics, products and services processes.
C) The processes perspective
Defines the value chain of the processes necessary to provide customers with solutions to their needs (innovation, operation, after-sales service). The goals and indicators in this perspective are derived from explicit strategies to meet customer expectations.
D) The learning and growth perspective
The necessary inducers are obtained to achieve results in the previous perspectives. The performance of the staff is reinforced with motivating agents that stimulate their interests towards the company. Employee capabilities, information systems capabilities, and organizational climate are measured to measure staff motivation and initiatives.
What is the Balanced Scorecard?
It is a tool that allows implementing the strategy and mission of a company from a set of action measures. It emphasizes the achievement of financial objectives, and includes the drivers for future action to achieve those objectives. It provides a structure to transform strategy into action. It makes it possible through the cause-effect diagram to establish strategic hypotheses (through the sequence yes / then.) Allowing to anticipate in the future, how the business will create value for customers.
Example of cause-effect analysis: If my staff is trained and motivated (learning and growth perspective) then they will be able to develop quality products and services (internal processes perspective). If they design quality products then my clients will be more than satisfied. If my customers are more than satisfied then they will buy and are likely to buy again and again (customer perspective). If my clients buy again and again then the profitability of my company will be increasing (financial perspective). If the profitability of my company increases then the shareholders or owners of the company will be satisfied. If the shareholders or owners are satisfied then they will agree to continue investing in training programs and motivating their staff.(Cause and effect model of the Balanced Scorecard).
If my staff has the appropriate competence, and if I give them the infrastructure they need for their development, I help to improve the work environment, then it is possible (hypothesis) that they work satisfied, if they are, it is possible that they improve their productivity and that Increase the retention of my staff, which will allow me to achieve the strategic results in my charge.
If I agree with this causal diagram, then I will establish indicators that inform me about the progress of future actions (performance drivers), measuring productivity, effectiveness, efficiency, effectiveness and staff retention rates. and of course outcome measures.
Sounds simple right? And it is, only that to implement it you need to be clear about the procedure, have the technology (available today in the Argentine market) and above all, have the will to produce the change that helps improve the profitability of your company by increasing your productivity.
Perspective from a soft command panel
Key to achieve the implementation of a strategy
Without a doubt, one of the most important keys is to get human resources involved. From the President to the last employee, they have to be committed and aligned with it, and for this the staff will have to be provided with the resources (time) and tools (training) to achieve the desired implementation. The vital thing is to transmit to everyone the vision, values and strategy of your company so that each employee is able to understand why they are occupying their position in the company and what results they are expected to contribute to the achievement of the strategy, this mode they will act proactively and not reactively.
His mission as Manager will be to measure the effectiveness of the application of the strategy using both financial indicators (outcome measures) and future performance indicators (performance drivers) and make decisions in real time.
The Dashboard is the tool that will help you achieve this, and will allow your company to increase its profitability, improving its internal processes in the short and long term. Surely when you implement it, your company will be one of those that you will be enjoying while nine others will continue to be indifferent to a heavy work environment in which your staff operates, thus preventing you from achieving the strategic objectives you want to achieve.
The solution is in your hands, it is called Balanced Scorecard, The Dashboard for Managers of the year 2000.
