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Soundview Executive Book SummariesCreating Corporate Synergies With the Balanced Scorecard
Business units must be coordinated if they want to save their company time and money. Alignment reduces waste, improves performance and increases opportunities, realizing the potential of a company that is lost when different units have conflicting goals. In Alignment, Robert S. Kaplan and David P. Norton describe the steps a company can take to correct the problem of internal and external misalignment. They believe that leaders at the top must take responsibility for organizational alignment. To help them do it, they use the step-by-step approach of the Balanced Scorecard management system to coordinate the implementation of corporate strategy.
In their first book together, The Balanced Scorecard, Kaplan and Norton introduced a new approach to measuring organizational performance and using that knowledge to manage strategy. Their next book, The Strategy-Focused Organization, detailed how companies can use the scorecard to guide their systems for managing the execution of strategy. In Strategy Maps, the authors expanded on the scorecard with a general framework for aligning processes, people and technology to the customer value proposition and shareholder objectives.
One of the authors' five key principles for aligning a company's measurement and management systems to strategy is aligning the organization to the strategy. In Alignment, the authors elaborate on this important principle by showing how diverse units under a single corporate umbrella can create more value than they could alone.
The authors make the point that the value creation that offsets administration costs must emerge from the alignment of decentralized units to create a new source of value. They call this "enterprise-derived" value. In Alignment, the authors present a way for company leaders to use the enterprise Strategy Map and Balanced Scorecard "to unlock previously unrealized value from enterprise synergies."
To demonstrate how the alignment of organizational units can improve performance, the authors cite numerous firms that have used the scorecard to capture enterprise-derived value. For example, they point out that Media General used the scorecard to align its diverse properties to a new strategy and saw its stock increase 85 percent more than that of its competitors over the next four years. By studying the corporate masters of alignment, the authors have discovered the secrets to successfully aligning financial and customer strategies, internal process and learning and growth strategies, support functions, boards and investors, and external partners.
The authors explain that organizational alignment is an explicit part of the management process. They write that the execution of strategy "requires the highest level of integration and teamwork among organizational units and processes." Management systems must have a clearly defined strategy at their core, the authors add, and all parts of the management process can be designed to create alignment.
According to the authors, alignment has the following four crucial components:
- Strategic Fit. This is the internal consistency of the activities that implement the unique parts of the strategy.
- Organization Alignment. This is how the various parts of a company synchronize their activities to create vital integration and synergy.
- Human Capital Alignment. This is achieved when employees' goals and incentives are aligned with the strategy.
- Alignment of Planning and Control Systems. This happens when management systems for planning, operations and control are linked to strategy.
By describing the experiences of the Balanced Scorecard Hall of Fame companies that have demonstrated the successful execution of strategy, the authors provide valuable case studies that support their solutions to vexing leadership problems. All of them show that success depends on the successful alignment of the strategy, the organization, the employees and their management systems.
Why We Like This Book
The authors of Alignment have refined the Balanced Scorecard to provide an even deeper look at management processes that can help companies create additional corporate value by improving communication inside and outside the organization. The experiences of dozens of companies provide examples of the authors' system for aligning people and business units, and show companies how to improve their processes for executing strategy. Copyright © 2006 Soundview Executive Book Summaries