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- Herausgeber: John Wiley & Sons
- Kategorie: Wissenschaft und neue Technologien
- Sprache: Englisch
Learn to maintain and update scorecards and dashboards with Excel Balanced Scorecards and operational dashboards measure organizational performance and Microsoft Excel is the tool used worldwide to create these scorecards and dashboards. This book covers time-proven step-by-step processes on how to guide executive teams and managers in creating scorecards and dashboards. It then shows Excel developers how to create those scorecards and dashboards. This is the only book that converts theory into practice. The author addresses the people and processes you need to identify strategy and operational metrics and then implement them in dashboards in three versions of Excel. You'll learn how balanced scorecards help organizations translate strategy into action and the ways that performance dashboards enable managers monitor operations. * Covers Excel 2010 back to Excel 2003 * Shows how to develop consensus on strategy and operational plans with the executive teams * Details steps in creating tactical action plans * Gives step-by-step guidance in creating the most powerful management dashboards * Puts over ten years of experience in one book Balanced Scorecards & Operational Dashboards with Microsoft Excel, Second Edition is the ultimate resource for enhancing your strategic and operational performance.
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Seitenzahl: 606
Veröffentlichungsjahr: 2013
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Table of Contents
Cover
Part I: Strategic Performance with Balanced Scorecards
Chapter 1: Accelerating Strategic Performance
Managing with a 500-Year-Old System
The Failure of Modern Management Systems
A Modern Strategic Management System
Why Use a Balanced Scorecard?
Building a Balanced Scorecard
Does the Balanced Scorecard Guarantee Business Success?
Does the Balanced Scorecard Really Work?
Do Small and Midsized Businesses Benefit from the Balanced Scorecard?
Is the Balanced Scorecard Worth Developing?
Summary
Chapter 2: Developing Your Strategic Foundation
Developing Your Strategic Foundation
Developing Your Strategic Assessment
Developing Your Strategic Destination Statement
Summary
Chapter 3: Preparing to Build Your Balanced Scorecard
Why Use a Balanced Scorecard?
Is Your Organization Ready for the Balanced Scorecard Journey?
You Must Make Your Case for Change
Motivating Executives
Building Balanced Scorecard Teams
Background Research
Interviewing Executives
Summary
Chapter 4: Step-by-Step to Building Your Strategy Map
What Is a Strategy Map?
Perspectives: Monitoring Your Strategy from Different Points of View
Strategic Themes: Concentrating Resources and Momentum along Specific Themes
Objectives and Causal Links: Modeling What Drives Your Business Success
Selecting a Strategy Map Facilitator
Step-by-Step to Creating Your Strategy Map
Summary
Chapter 5: Step-by-Step from Strategy to Action
Turning Your Strategy Map into Measurable Action
Strategic Theme Teams
Motivating and Educating the Strategic Theme Teams
Brainstorming Initiatives
Developing a Robust List of Initiatives
Prioritizing Initiatives
Summary
Chapter 6: Step-by-Step to Selecting Metrics and Setting Targets
Achieving Balance in Your Balanced Scorecard
The Right Number of Measures
If You Have More Than the “Critical Few,” You Lose
Leading and Lagging Metrics: Drivers and Results
Sample Objectives and Metrics
Step-by-Step to Selecting Your Metrics
Defining the Metric with a Metric Definition
Look Out! What You Measure Is What You Get!
Critical Questions to Ask about Your Measures and Metrics
Setting Targets
Summary
Chapter 7: Step-by-Step to Developing Your Implementation Plan
Step-by-Step to Translating Initiatives into Projects
Monitoring Initiatives in Progress
Summary
Chapter 8: Step-by-Step to Rollout and Strategic Reviews
Creating a Culture Focused on Strategy
Strategy Review Meeting
Communication, Training, and Rollout
Summary
Part II: Operational Performance with Dashboards
Chapter 9: Developing Executive and Operational Dashboards
Why Are Dashboards Used with Increasing Frequency?
The Differences between Dashboards and Scorecards
Challenges in Developing Dashboards
Developing Your Dashboard
Summary
Chapter 10: Mapping Your Operational Processes
Before You Map, Know Why
Dashboards and Six Sigma
Types of Process Mapping
Step-by-Step to Building a Map
Summary
Chapter 11: Identifying Critical Metrics and Key Performance Indicators
General Rules for Metrics in Operational Dashboards
Interview the Decision-Makers
Identify Metrics Using Your Map
Cross-Check Your Metric
Summary
Part III: Building Maps, Scorecards, and Dashboards
Chapter 12: Creating Dashboards for Decision-Making
Step-by-Step: Creating Dashboards That Aid Decision-Making
Rules of Design
Tips on Graphical Elements
Some Important Sources on the Art and Science of Visualizing Data
Summary
Chapter 13: Drawing Process and Strategy Maps
Which Drawing Tool Should You Use?
Drawing with Microsoft Office Drawing Tools
Drawing with Microsoft Visio
Summary
Chapter 14: Using Microsoft Excel for Balanced Scorecards and Dashboards
Excel Is the Most Widely Used Balanced Scorecard Software
Consider the Trade-Offs between Excel and Large BI Systems
Disadvantages of Excel
Advantages of Using Excel
When to Use Excel
Solutions
Summary
Chapter 15: Text-Based Dashboards
Alerting with Conditional Formats
Creating In-Cell Charts with Text
Alerting with Conditional Text Icons
Summary
Chapter 16: Custom Labels and Formatting
Combining Numbers, Text, and Dates to Create Custom Labels
Time and Data Calculations
Scaling Numbers with Formatting
Creating Custom Titles and Floating Text
Creating New Color Palettes
Summary
Chapter 17: Working with Data That Changes Size
Using Tables for Data That Changes Size
Naming Ranges for Ease of Use and Functionality
Summary
Chapter 18: Retrieving Data from Lists and Tables of Data
More Powerful Than VLOOKUP: INDEX and MATCH
The Key to Retrieving Data and Creating Interactive Dashboards
Summary
Chapter 19: Creating Miniature Charts and Tables
Using Miniature Charts, Tables, and Sparklines for Greater Information Density and Improved Layout
Creating Miniature Charts from Standard Excel Charts
Creating Sparklines
Excel’s Amazing Camera Tool
Summary
Chapter 20: Controlling Charts with Menus, Combo Boxes, and Buttons
Adding Combo Boxes, Lists, Check Boxes, and More to Your Dashboards
Selecting Data with a Combo Box or List
Selecting Data with Multiple Criteria Using Multiple Combo Boxes
When to Use a Data Validation List or Combo Box
Creating Dynamic Cascading Combo Boxes or Lists
Using Option Buttons
Displaying or Hiding Data with a Check Box
Scrolling Charts through Time with a Slider Bar
Summary
Chapter 21: Working with PivotTables
Basic Concepts of PivotTables
Creating an Auto-Expanding Database or List Name
Using PivotTable Results in Dashboards
Drilling Down to Detail with PivotTables
Updating the PivotTable Linked to Internal or External Data
Summary
Chapter 22: Working with PowerPivot
Basic PowerPivot Concepts
Downloading and Installing the Free PowerPivot Add-In
Downloading Sample Demos for PowerPivot
Connecting to Data
Creating PivotTables or PivotCharts with PowerPivot
Calculating Fields with Data Analysis Expressions (DAX)
Summary
Chapter 23: Smoothing Data and Forecasting Trends
Smoothing Erratic Data
Adding the Analysis ToolPak to Excel
Forecasting Trends
Summary
Chapter 24: Identifying Targets and Displaying Alerts
Charting Target Values
Charting Alerts with Conditional Colors
Charting Alerts for the Top/Bottom n, Quartiles, and Percentiles
Charting Alerts with Line and XY Scatter Diagrams
Adding a Visual Indicator to Top/Bottom n, Quartile, and Percentile Charts
Alerting with E-mailing
Summary
Chapter 25: Building Powerful Decision-Making Charts
Seeing a Full Statistical Picture with a Box-and-Whisker Plot
Bullet Charts: A Better Alternative to Gauges
Pareto Charts Show What Is Most Important
Variance Charts Make a Difference
Project Your Projects with Gantt Charts
Project Variance Gantt Charts
Control Charts
Summary
Chapter 26: Drilling to Detail
Navigating
Drilling Down to Detail
Summary
Chapter 27: Using Excel Add-Ins for Extra Capabilities
ASAP Utilities
FlowBreeze Flowcharting
Systems2Win Value Stream Mapping
PowerPivot
Simtools
Formlist
Managing Excel Add-Ins
Summary
Chapter 28: Finishing Touches
Adding Context and Comments with Briefing Books
Displaying Pop-Up Content and Dynamic Help
Controlling Dashboard Display
Hiding Worksheets
Sending Conditional E-mails from Dashboards
Adding Headers and Footers
Locating and Removing Phantom Links
Protecting Content, Worksheets, and Workbooks
Restricting the User’s Range
Summary
Chapter 29: Data Integration Methods
Should You Use Manual Data Entry or Automated Data Integration?
Manual Data Entry for Dashboards
Automating Data Retrieval with Text Files
Automating Data Retrieval from Databases
Importing Data Using a PivotTable
Refreshing Data Automatically
Linking Imported Data to Your Dashboard
What Is OLAP, and When Should You Use It?
Summary
Chapter 30: Publishing Balanced Scorecards and Dashboards
Publishing Directly in Excel
Publishing Multidashboard Systems
Publishing in PowerPoint
Publishing in PDF
Summary
Introduction
Success through Strategic Execution and Accelerating Operational Performance
Who This Book Will Help
How This Book Is Organized
Free Resources That Extend This Book
Part I
Strategic Performance with Balanced Scorecards
In This Part
Chapter 1: Accelerating Strategic Performance
Chapter 2: Developing Your Strategic Foundation
Chapter 3: Preparing to Build Your Balanced Scorecard
Chapter 4: Step-by-Step to Building Your Strategy Map
Chapter 5: Step-by-Step from Strategy to Action
Chapter 6: Step-by-Step to Selecting Metrics and Setting Targets
Chapter 7: Step-by-Step to Developing Your Implementation Plan
Chapter 8: Step-by-Step to Rollout and Strategic Reviews
Chapter 1
Accelerating Strategic Performance
The essence of strategy is choosing what not to do.
—Michael Porter
The rate of change in the business world is accelerating. To get ahead—in fact, just to keep up—organizations of all types must accelerate their strategic performance.
They have to work with better performance, more precise focus, and better strategic alignment. For this to happen, all parts of the organization must clearly understand and be firmly aligned with strategic goals.
In the last two decades, a strategic management system has been developed that enables organizations to achieve the clarity and alignment necessary to accelerate strategic performance. That system is the Balanced Scorecard.
Managing with a 500-Year-Old System
Until recently, organizations have used the same accounting system to track assets and value production that was used 500 years ago in Venice, Italy. In 1494, Fra Luca Pacioli, Franciscan monk and friend of Leonardo da Vinci, wrote Everything about Arithmetic, Geometry, and Proportions (see Figure 1-1). It was the first best-selling business book to come off of Gutenberg’s printing press.
Figure 1-1: Over 500 years ago, Fra Luca Pacioli, on the left, documented the double-entry accounting system we still use today.
Luca Pacioli’s Portrait, Gallery of Museum of Capodimonte, Naples
What made his book a best-seller throughout Europe was that it contained detailed instructions on how the merchants of Venice kept their accounts using double-entry accounting. The book included sections on
Modern accounting cycles
Double-entry accounting
Journals and ledgers
Assets, liabilities, capital, income, and expenses
Closing
Trial balances
The book blazed through the halls of commerce in Europe because, for the first time, it gave business people a way to value their tangible assets and measure how they were producing value. But what is surprising is that we still use the same accounting system used by the merchants of Venice 500 years ago.
The Failure of Modern Management Systems
Research by Margaret Blair of the Brookings Institute into the market value of corporations listed in the Compustat database shows that the market value of U.S. corporations has shifted significantly from tangible to intangible assets. As shown in Table 1-1, in the ten years from 1982 to 1992, the contribution of intangible assets to market value rose from 32 percent to 68 percent. Subsequent studies from multiple sources estimate that since 1998, intangible assets’ contribution to corporate value is approximately 85 percent.1
Table 1-1: The Growth of Intangible Asset Contribution to Corporate Value
Year
Intangible Assets
Tangible Assets
1982
32%
68%
1992
68%
32%
1998
85%
15%
More recent research reflected in the Ocean Tomo 300 Patent Index shows that 80 percent of the market value of companies in the United States’ Standard & Poor’s 500 Index is due to intangible assets for the period from 2005 to 2010.
How can intangible assets such as people, processes, patents, and data be monitored and managed effectively using a 500-year-old system designed for use with tangible assets?
Ram Charan, international consultant and coauthor of Execution,2 wrote an article in Fortune magazine titled “Why CEOs Fail.” In writing about highly experienced, well-known CEOs who lead their companies into failure, he said, “In the majority of cases—we estimate 70 percent—the real problem isn’t the high-concept boners the boffins love to talk about. It’s bad execution.”3
Charan goes on to write that most CEOs are hard-working, experienced, brilliant people. His research found one problem common to all the failures:
Yes, strategy matters. A good, clear strategy is necessary for success—but not sufficient for survival. So look again at all those derailed CEOs on the cover [of the magazine]. They’re smart people who worried deeply about a lot of things. They just weren’t worrying enough about the right things: execution, decisiveness, follow-through, delivering on commitments.
So executives and managers face two serious problems. First, the source of value production has switched from tangible assets that can be monitored with current accounting systems to intangible assets that are difficult to manage. Second, most corporations fail at executing their strategy.
A Modern Strategic Management System
In 1992 Harvard professor Robert Kaplan and consultant David Norton published the article “The Balanced Scorecard—Measures that Drive Performance” in the Harvard Business Review.4 The ideas in this article sowed the seeds of a strategic management system to translate strategy into action, to monitor strategic execution, and to align organizations around strategy.
Initial attempts to use the Balanced Scorecard seemed to either propel organizations to success or burden them with administrative overhead and dismal results. The difference between failure and success was often in the selection of metrics used to measure strategic execution. In 2000, Kaplan and Norton published another article in the Harvard Business Review titled “Having Trouble with Your Strategy? Then Map It.”5 This article outlined how to build a visual map that shows the objectives and causal links necessary to execute a strategy. These causal links enabled executives to identify the key metrics that drive success. These two ideas, the Strategy Map and the Balanced Scorecard, combined with more recent developments, have built a strategic management system that is an important part of modern business management.
The Strategy Map represents how an organization will execute its strategy. The Strategy Map shows the objectives needed to execute the strategy and the causal links between objectives. The Strategy Map is a tool for clear communication and helps identify the “critical few” metrics to monitor strategic execution. You can learn more about Strategy Maps in Chapter 4.
The Balanced Scorecard is part of a system that translates strategy into action. The Balanced Scorecard gives a balanced view in four perspectives of how well an organization is driving execution and how successful the results are. The four perspectives in the Balanced Scorecard and Strategy Map give executives a more balanced view of their organizations. They go beyond financial measures to include finance, customer and marketplace, internal operations, and learning and growth. These categories include people, culture, intellectual property, and IT infrastructure.
The Strategy Map and Balanced Scorecard can take one to three years to fully implement in an organization, but the results can be impressive. A Balanced Scorecard helps you do the following:
Clarify strategy.
The discussions and thought that go into developing the Strategy Map bring clarity and understanding to the executive team in terms of the strategy and interplay between departmental silos. The graphical Strategy Map pinpoints for employees how they contribute to strategic success.
Translate strategy into action and execute it.
The Strategy Map, combined with an Action Plan and Implementation Plan, give everyone a clear road map showing how the strategy will be translated into action. The Balanced Scorecard is used to stay on track and to monitor execution.
Align business units around the strategy.
Most organizations develop “silos,” functional departments or divisions that are more concerned with their own success than they are with achieving success for the entire organization. But developing the Strategy Map and Action Plan requires that the walls between silos come down. Focusing on Strategic Themes that cross functional boundaries forces departments to work together, breaking down silos even more.
Communicate the strategy to all levels.
The process of cascading the Balanced Scorecard through the organization gives each level the opportunity to contribute to organizational success. It allows executives to communicate with functional managers about how to achieve strategic goals. It allows functional managers to provide feedback to executives about capability and capacity.
Monitor and manage strategic execution.
Research has shown that most executive staff members spend less than 10 percent of their time monitoring strategy and execution. Instead of leading through strategy, executive staff members often become embroiled in operational performance, something better left to managers. Using the Balanced Scorecard as an agenda gives executive meetings a central focus on strategic leadership.
Why Use a Balanced Scorecard?
Building a Strategy Map and Balanced Scorecard for an organization follows much the same process as taking a trip to a specific location. To take a trip you need to do the following:
Select a destination.
Agree on the type of trip.
Agree on the route.
Map the route.
Plan time and resources.
Travel.
Stay on course.
Leading a business in our high-speed world isn’t that different from flying a jet. Imagine boarding a small jet, pausing at the entry, and asking the pilot a few questions:
You: “What is our destination?”
Pilot: “The crew got together and talked about a destination. We couldn’t agree, so we decided to go somewhere out West. If something better comes up while we’re en route, we might change direction.”
You: “What route will we be taking?” (Maybe I’ll still go. It sounds adventurous, although it could be a waste of time and fuel. It shouldn’t be too dangerous.)
Pilot: “Well, we aren’t sure about the exact route, but I’ve been that general direction before, so I don’t need maps. I’m experienced.”
You: “I notice that your cockpit dashboard seems a bit sparse. There aren’t any flight instruments—just stacks of paper. How will you monitor the flight?” (This is starting to sound a bit iffy. The pilot may be experienced, but how will she communicate her experience to the copilot, the flight engineer, the flight attendants, the ground crew, other aircraft, and the Federal Aviation Administration?)
Pilot: “Well, we’re comfortable with the detail of printed reports. While we’re in flight, I can request a short stack of printed reports that tell me the airspeed, altitude, attitude, and heading. The copilot gets a larger stack with operational data about radio settings, fuel, hydraulics, and technical details. We have to ask for the data, but it takes only a few minutes to get new reports. So we’re in pretty good shape as long as everything stays stable and we don’t have mechanical, weather, or crew problems.”
You: “Sounds like quite an adventure you’re about to embark on. Sorry I won’t be able to go with you.”
This metaphor isn’t that far from how some organizations manage. Many start-ups and high-tech companies define their strategy as going after “targets of opportunity.” I’ve actually heard executives of high-tech start-ups proclaim that having a strategy puts up boundaries. They feel their business changes too fast for any type of strategy. This seems especially true for companies making the organizational leap from small company (less than $50 million) to big company (over $100 million).
It is possible to be agile while having strategic objectives that cement the organization. For example, Eric Ries in his book The Lean Startup (Crown Business, 2011) describes the concept of Minimum Viable Product that evolves with agile adaptation to customer needs. At market failure points the lean startup method demands that a business pivot in a new direction. But nowhere does that prevent a business from having an overarching strategy and objectives. In fact, objectives such as minimum viable products, agile development, and pivots can be critical strategic objectives in themselves. They are objectives on which you want to build a culture. Without the use of strategic and operational dashboards to monitor customer and development metrics, high-tech companies can drive themselves crazy chasing customers and wasting resources.
Although the idea of a pilot flying by referring only to printed reports seems outlandish, consider how many organizations manage while looking only at financial reports. Financials show only lagging results from efforts that may be from months before. Doing this is almost the same as flying using printed reports alone.
Recent research confirms that executives and managers with over ten years’ experience in an industry can have a good gut instinct for making decisions, but how can they communicate that gut instinct to the hundreds or thousands of people they must lead and manage? How can employees and managers without such experience understand the strategy and make good decisions?
The Strategy Map gives an organization an excellent visual tool to explain what is important for strategic success and how and where in the strategy each employee contributes. Executives and managers at multiple levels can use the Balanced Scorecard to monitor whether they are actually driving strategic success. If the results aren’t happening as planned, the Strategy Map, Strategic Objectives, and Balanced Scorecard need to be revised until the organization has a valid model of what works.
Building a Balanced Scorecard
The activities for planning a trip listed in the preceding section correspond to similar activities in building a Strategy Map and Balanced Scorecard, as shown in Table 1-2.
Table 1-2: Building a Balanced Scorecard Is a Journey
Travel
Balanced Scorecard
Intent
Select a destination.
Destination Statement
State in one page what your organization wants to be at the end of your strategic horizon.
Agree on the type of trip.
Strategic Themes
Your trip’s journey might have a theme of speed or low cost. Your Balanced Scorecard might have Strategic Themes such as customer intimacy or operational excellence. How you execute your Strategic Themes differentiates you from your competitors.
Agree on the route.
Executive and Division Alignment
Leaders, managers, and employees must all be going in the same direction.
Map the route.
Strategy Map
Identify the route and objectives that will get you to your destination.
Plan time and resources.
Action Plan and Implementation Plan
Identify the measures, metrics, and initiatives, and who is accountable.
Travel.
Prioritize, budget, and act
Execute the strategy.
Stay on course.
Balanced Scorecard
Monitor your Balanced Scorecard to make sure your organization is on track.
Does the Balanced Scorecard Guarantee Business Success?
No killer methodology guarantees success in business. The Strategy Map and Balanced Scorecard do not guarantee success. Organizations can still fail by having the wrong strategy, by having a poorly built Strategy Map and Balanced Scorecard, by failing to use the Balanced Scorecard after it is implemented, or by failing to modify the Balanced Scorecard if their hypothesis of what works is wrong.
I occasionally meet consultants and executives who proclaim, “We tried a Balanced Scorecard and it didn’t work.” Their perception may be true. Some research shows that approximately 30 percent of Balanced Scorecard attempts fail.
There are many reasons for failure, and the Balanced Scorecard fails in companies for a variety of reasons. Here are some of the most common:
Lack of senior executive commitment:
An executive at the highest level in the strategic business unit must sponsor the Balanced Scorecard. Without the commitment of the senior executive, managers and employees feel that the Balanced Scorecard is just another “management fad of the month.” The senior executive must make a case for change in the organization that will light a fire under everyone.
Lack of a case for change:
Organizations are difficult to change. The Balanced Scorecard is used to create a culture of high performance, translating strategy into action. Without a driving need for change, and an organization-wide awareness of the need, the Balanced Scorecard will become just another performance management system that will fade.
Lack of an experienced consultant or facilitator:
Developing and implementing a Balanced Scorecard is difficult. It is critical to use an experienced facilitator or consultant to guide initial development and to train internal facilitators and managers who can carry on the work. You are betting the strategic success of your organization on this effort. You don’t want to use a general business consultant who has read a book or a
Harvard Business Review
article on Balanced Scorecards. There are many traps to avoid, and you want someone who knows how to do so.
Too many metrics:
Too many metrics can create a confusing model of what drives strategic success. The Balanced Scorecard becomes an Operational Dashboard.
The wrong metrics:
Using the wrong metrics drives performance in the wrong direction.
Fear of measurement:
People in some organizations fear being measured. This fear could stem from many different causes, some of them valid. The way to approach this fear is that the Balanced Scorecard and operational performance are not there to identify and punish the poor performers. Rather, they are there to identify high performance and share the best practices that created the high performance. Handling this depends on the skill and practices of management.
Too long to develop:
Taking too long drains motivation and results in the loss of key resources and momentum.
Cultural mismatch:
Organizations with a cultural norm of low performance or organizations with dictatorial executives require a major cultural change before implementing a Balanced Scorecard.
Some executives and consultants have asked me if the Balanced Scorecard replaces Six Sigma, if it’s more productive than Lean, or if it coordinates projects better than a Project Management Office. A Balanced Scorecard does not replace any of these. It works as a strategic management system that acts as an envelope to keep Six Sigma and Lean projects aligned with strategy. It works with accounting, budgeting, and the Project Management Office to optimize them for the organization, rather than just for individual silos.
Some organizational cultures just don’t work well with a Balanced Scorecard. For example, some nonprofits, such as hospitals, work well with Balanced Scorecards and can use them to significantly increase their efficiency and performance. Other nonprofits, such as social service organizations, seem to have a great deal of difficulty working with measures and metrics. Often this is because they feel they provide intangible benefits, which are not measurable. Some for-profit high-tech companies, especially start-ups, feel that their business changes too rapidly to have any strategy. Their strategy is to go after any opportunity. Other for-profit high-tech companies, such as medical device manufacturers, have a focus that benefits greatly from a Balanced Scorecard.
I’ve seen organizations that have a cultural mismatch with a Balanced Scorecard and have no desire to change. Some of these organizations seem to have a culture of self-inflicted low performance. In particular, one director of an umbrella social services organization comes to mind. As part of a group of pro bono senior consultants, I volunteered to help the organization increase productivity and manage staffing problems. When our pro bono group presented our findings, along with numerous no-cost and low-cost solutions, the director scolded us: “We are here to help people. We are not your Silicon Valley corporation concerned with measuring, planning, and performance.” Those of us on the consulting team who gathered later for an After-Action Review felt sad for the organization’s young clients. The director had the attitude that her organization couldn’t increase performance and care for people at the same time. By enabling low performance under her management, she was abandoning many children who might have gotten a head start on education. Low performance with no desire to change meant that many low-income families weren’t being served by the health and education clinic under her control.
Does the Balanced Scorecard Really Work?
The now-famous quote “What gets measured gets done” is most often attributed to management guru Peter Drucker. Although it seems to be an obvious truth, a more direct proof of the value of Balanced Scorecards is their acceptance and use among corporations worldwide. Bain & Company, an international consulting firm, does an annual survey on management tools among its 6,200-plus large corporate clients. Approximately 50 percent of the surveyed clients use a Balanced Scorecard, with an almost 80 percent satisfaction level. This makes the Balanced Scorecard one of the most widely used strategic tools and places it within the cluster of tools that garner high levels of satisfaction.
Although the Bain & Company survey shows the pervasive use of the Balanced Scorecard, many organizations don’t talk much about their success to the press. But successes that have been publicized cover a wide range of industries:
Duke Children’s Hospital reduced costs by $30 million and increased net margin by $50 million in two to three years while increasing patient and staff satisfaction.
Delta Dental of Kansas, the largest dental benefits provider in the state, is a 90-employee company that saw its revenues jump from $63 million in 2001 to $172 million in 2006 (a 173 percent increase) while increasing employees’ satisfaction with and understanding of their jobs.
6
Crown Castle International, the world’s largest owner of telecom infrastructure, needed a strategic shift from its acquisition strategy in 2001 to a strategy of operational excellence in 2003. Even as its competitors faced meltdown, it saw cash flow rise from a negative $300 million to a positive $100 million, and its stock price beat market indices by more than 300 percent.
7
Keycorp, one of the nation’s largest bank financial services organizations, has cascaded its four strategic themes through all 19,000 employees.
8
The Key Corporate and Investment Banking Group (KCIB) improved its return on equity (ROE) by 28.8 percent in three years, and its vendor satisfaction ratings also improved. In three years, its ratings went from 45–74 percent to 86–93 percent.
Do Small and Midsized Businesses Benefit from the Balanced Scorecard?
Executives of small and midsized businesses (SMBs) may have the impression that the Strategy Maps and Balanced Scorecards are for large corporations only. Actually, small and midsized businesses may find that Balanced Scorecards are easier for them to implement and that the payoff comes quicker. Of the Balanced Scorecard Hall of Fame winners, 20 percent are small and midsized businesses.
SMBs may have even more to gain from Strategy Maps and Balanced Scorecards than large organizations because of their limited resources. SMBs in particular have to make sure that they focus their efforts, provide better services, and drop projects that aren’t aligned with strategy. The Balanced Scorecard is designed to align an organization around a focus and to make it easier to identify projects that aren’t within that focus.
Communication and decision-making within SMBs can improve as well. With fewer layers of management and fewer employees, a Strategy Map makes communication even easier and faster. Also, strategic issues can come to light faster when the Balanced Scorecard is incorporated into normal executive team meetings.
Many SMBs are opportunity-driven. SMBs providing high value in growing niches will see opportunity everywhere. Maintaining a focused strategic direction can be as difficult as walking a kid in a straight line through a toy store. This is where a Balanced Scorecard can help. In the article “Why the BSC Is Just as Effective for Small and Medium-Sized Firms,” Tom Lefebvre, director of Strategic Planning for the Alaska Native Tribal Health Consortium (ANTHC), says that the Balanced Scorecard “has provided a framework that has created absolute clarity of our strategy and ultimate vision.” Because of the Balanced Scorecard, ANTHC has increased its cash flow and has seen an 80 percent drop in nursing turnover.9
Strategic plans in all organizations usually become far too complex to implement. This is where the Balanced Scorecard can help. By working through the Balanced Scorecard process, from Strategy Map to Balanced Scorecard to Action Plan to Implementation Plan, it becomes obvious which initiatives and projects contribute to strategy and how they must be scheduled and budgeted over time.
The work of developing a Balanced Scorecard is intense in an SMB in which everyone wears multiple hats. This is where an experienced consultant can help facilitators and managers get up to speed quickly and reduce the burden. Write-ups from the Balanced Scorecard Hall of Fame winners show that the first year of development is hard work, the second year gets easier, and the third year is even easier—with benefits coming in.
Is the Balanced Scorecard Worth Developing?
Is the Balanced Scorecard worth developing in your organization? It takes dedication and work, but ask yourself these questions:
Would we be more successful if the executive team focused more on strategic leadership and less on operational problems?
Would we be more successful if our executives and managers used Strategy Maps as a forum to constructively breach the walls between silos?
Would our managers be more knowledgeable about what drives their business if they had to define the critical few metrics that drive and measure success?
Would our employees be more proactive and satisfied if they understood how they affect strategic success?
If your answers to these questions are yes—if changes such as these would increase the success of your organization and its people—you should find out how you can implement your Balanced Scorecard.
Summary
The rate of change in the world of business is accelerating. The only way for organizations to succeed is to execute their strategy. If your organization wants to succeed, you have to translate your strategy into action, aligning your organization with strategic objectives and making sure that every employee knows how he or she contributes to strategic success. The most powerful tools you can find for building a culture of high performance are the Strategy Map and Balanced Scorecard. Creating them and building a high-performance culture isn’t easy, but it is a journey that can lead to organizational success.
Notes
1. M. Blair, Ownership and Control: Rethinking Corporate Governance for the Twenty-First Century (Washington, D.C.: Brookings Institution, 1995).
2. L. Bossidy and R. Charan, Execution: The Discipline of Getting Things Done (New York, New York: Crown Business, 2002).
3. R. Charan and G. Colvin, “Why CEOs Fail,” Fortune 139, no. 12 (June 21, 1999).
4. R. Kaplan and D. Norton, “The Balanced Scorecard—Measures that Drive Performance,” Harvard Business Review, January 1992.
5. R. Kaplan and D. Norton, “Having Trouble with Your Strategy? Then Map It,” Harvard Business Review, September 2000.
6. Delta Dental of Kansas, “Balanced Scorecard Hall of Fame Report 2007,” Harvard Business School Publishing and Balanced Scorecard Collaborative, 2007: 17.
7. Crown Castle International, “The Balanced Scorecard Hall of Fame Profile Series,” Harvard Business School Publishing and Balanced Scorecard Collaborative, 2005.
8. “KeyCorp Honors Its Top Technology Suppliers,” Actuate Corporation, February 26, 2004, http://www.actuate.com/company/news.
9. M. Bognanno, “Why the BSC Is Just as Effective for Small and Medium-Sized Firms,” Balanced Scorecard Report, January–February 2008.
Chapter 2
Developing Your Strategic Foundation
Plans are nothing; planning is everything.
—Dwight D. Eisenhower
The most widely used management tool is strategic planning. Bain & Company, an international consulting firm, does an annual survey of more than 8,000 international clients. Since the early 1990s, this survey has shown strategic planning to be one of the most frequently used and highly rated management tools.
Before you can begin developing a Balanced Scorecard, you must start with a strategic foundation. For most organizations this foundation has the following components:
Mission, vision, and values
Assessment of internal and external environment
Strategy formulation
Strategic Destination Statement
Any search of Amazon.com will point you to many books on business strategy. This topic has at least 10 schools of thought, and most business executives have their own preferences and opinions that guide their development of strategy. Because so much information on strategic planning is available, this chapter won’t attempt to describe how you should formulate your own business strategy. But it gives you some background on the basic tools needed for developing strategy in preparation for your Balanced Scorecard.
You must remember one thing as you develop your strategy: What differentiates you from your competition is how well you execute your strategy. You may develop a great strategy, but it will fail if you can’t, or don’t, execute it. The Balanced Scorecard is your tool for strategic execution.
Developing Your Strategic Foundation
The members of the executive leadership team are the leaders of your organization. The leadership team should lay the company’s foundation by defining its mission, vision, and values.
Most business people recognize the need for an organization to have a mission, vision, and values, but confusion often results over what these elements are. You know confusion is present when it is hard to tell the difference between the three. Descriptions about beliefs and values show up in a vision statement, and descriptions of an organization’s future appear in a mission statement.
Lacking clarity in your mission, vision, and values makes it difficult to create a successful strategy. Alice and the Cheshire Cat discussed the reasons for knowing where you want to go in Lewis Carroll’s Alice’s Adventures in Wonderland:
“Would you tell me, please, which way I ought to go from here?”
“That depends a good deal on where you want to get to,” said the Cat.
“I don’t much care where—,” said Alice.
“Then it doesn’t matter which way you go,” said the Cat.
“—so long as I get SOMEWHERE,” Alice added as an explanation.
“Oh, you’re sure to do that,” said the Cat.
If you want your organization to achieve a specific future goal, create clear and concise mission, vision, and value statements. You also need a clear, concise, and precisely quantified Strategic Destination Statement, which is described near the end of this chapter.
To keep your mission, vision, and values clear and concise, use these questions as clarifiers:
The Strategic Destination Statement is similar to the vision statement. It details the specifics of what the organization will be, who its customers will be, the time frame for accomplishing these things, and how it will get there.
Mission
The mission statement says what you do as an organization—why you exist. The most memorable mission statements are short and inspiring.
I remember accompanying a senior engineer through one high-tech plant. As we walked the halls, I asked him about the company’s mission and vision statement. He stopped and pulled from his shirt pocket a threefold laminated card. It detailed the company’s mission, vision, and values in all their 12-paragraph, nine-point glory. Putting on his glasses, he began to read. He had to read through only the first three paragraphs with a smile before I got his message. Everyone was expected to carry around the mission, vision, and values, but they were so large, cumbersome, and convoluted that no one could remember them.
Compare that to a mission statement attributed to Walt Disney:
We make people happy.
To see examples of both good and bad mission statements, go to http://www.missionstatements.com.
Vision
A vision statement inspires an organization to be more than it is now. Vision statements are all about what the organization will be in the future, not what it will do to get there. We’ll leave the doing and the details to the Strategic Destination Statement, described later.
The time frame for your vision statement depends on the speed of change in your industry. If you are in a rapidly changing industry, your vision statement may have a short strategic horizon of a few years. If you are in a stable industry, your strategic horizon may be 10 years. Most organizations use a strategic horizon of three to five years.
Vision statements should inspire their audience with a big, glorious picture of what could be. Those big, glorious pictures are BHAGs—big, hairy, audacious goals. BHAGs were first described by best-selling authors James Collins and Jerry Porras, who wrote about them for the Harvard Business Review in their 1996 article “Building Your Company’s Vision.”1 They later expanded on the concept in their book Built to Last: Successful Habits of Visionary Companies.2
In Built to Last, Collins and Porras illustrate how a clear and compelling vision serves as a catalyst to inspire people to reach new heights. Their book describes the differences between 18 companies inspired by BHAGs and 18 other companies.
Jon Katzenbach and Douglas Smith describe this same big vision in The Wisdom of Teams3 as the catalytic force necessary to create a high-performance team. They show how high performance and exceptional effort don’t happen in organizations or teams until a “timely crisis” occurs. Teams and companies need a big, almost insurmountable goal that can be achieved only through extraordinary effort.
Developing Your Vision
One strategy I use to help an organization imagine its BHAG or vision is guided imagery. This process helps people relax and allows their imaginations to go beyond their normal limits. Then you guide the group through an experience using nonjudgmental statements. Counselors, meditators, and therapists have used it for decades.
Before initiating this process, consider the company’s culture and your own experience. Using this process with a group of English barristers might be completely different from using it with a group in a California organic foods grocery chain. Individuals who are uncomfortable relaxing into this process can participate at whatever level they feel comfortable. For participants who are practiced in meditation or self-hypnosis, it can be as relaxing and invigorating as a mini vacation.
In this process, you lead your “visionary” group on a trip into the future. On that trip, they envision and experience the organization in the future. Upon returning to the present, each person writes down the four or five most important new “ways of being” they saw in the future. These can then be used as the source for a vision statement.
Before you begin, you must know what your strategic horizon is. How far out will this vision be? Most organizations use three to five years for the horizon.
Choose a room with comfortable chairs and tables for writing. Decrease the illumination slightly by closing any shades or blinds and turning down the lights. One wall needs a smooth surface or large whiteboard on which you will capture the vision with a giant notepad of the sort typically used for group meetings.
The visioneering team should have six to eight senior executives with cross-functional positions and 10 or more years of experience in the industry. The whole process may take two to three hours.
Before you begin, remind everyone that the vision is not “what we will do,” but rather “what we will be in x years.”
Begin with a warmup discussion about envisioning the future and BHAGs. You may want to use examples from experience or from books such as Built to Last or Good to Great. In one instance, a group started with a movie on how nearly impossible visions have become realities. The movie included clips from John F. Kennedy’s speech about putting a man on the moon and clips from Martin Luther King’s “I Have a Dream” speech.
Remember to leave time between statements as you guide people with your voice. It is very uncomfortable to participate in a guided imagery session that feels rushed because the guide is moving on to the next scene before the participants are ready to. You must think about what will work for the person seeing the guided images.
One client’s visioneering session took place at headquarters on an upper floor of a large office building. I dimmed the lights, had everyone put down their pens, and gave them the option of closing their eyes if they felt comfortable doing so. I then proceeded to guide them on a bus trip to see their company, PerformCo., in the future. Clients told me later that they called this the “Magic Bus.”
My soft “tour guide” voice followed a script something like this:
“We are going on a trip into the future to see what PerformCo. has become. While you are on this trip, watch and listen for important points you want to remember.
“We will be traveling through offices and seeing presentations. You will have a chance to read important items on whiteboards. You may even see a newspaper headline or overhear a conversation. Remember what is important to you about PerformCo’s future.
“Let’s begin the trip.
“Imagine that you are standing in front of an elevator that will take us down to a bus that will transport us to PerformCo x years in the future.
“The elevator doors open. You step in, and the doors swoosh shut. You feel the elevator sway slightly as it moves down. You look up and see the floor numbers count down to the bottom floor. As it goes down each floor, you feel more and more relaxed and comfortable, yet your mind feels awake. 10, 9, 8, … .” (Count down slowly and in a soft voice.)
“We’re at the bottom floor. The doors open, and a bus is waiting for us outside. The bus opens its doors, and we get on.” (Wait for a moment as people get on the bus in their minds.)
“As the bus starts, the driver says, ‘We’re going x years into the future. We will be stopping at a couple of locations, including the PerformCo office. I will be here to take you back when you’re ready.’
“You feel the bus move rapidly forward, and the windows fog. The bus slows and stops.
“We have just arrived at one of PerformCo’s newest locations.
“The doors swoosh open. As you step off the bus, you can feel the wind blowing against your face. You hear the crunch of small stones under your feet.
“You stand outside and look at the building. What is your impression?
“Look around you. Notice the building. Notice the people. How do they feel about being here?
“You walk to the front door, open it, and walk inside.
“The reception area has a directory board. Notice the divisions and departments on the board. Has the organizational structure changed?” (Pause so that people can visualize and remember what they imagine. Take longer than you think they will need.)
“Let’s walk down the hall.
“A group of customers are in the hallway. They don’t notice you. You overhear them talking about PerformCo. What are they saying?” (Pause.)
“You continue walking. Looking into a lounge area, you see PerformCo employees and customers gathered around a table. What are they doing? What is their attitude toward each other?
“You’ve walked full circle and are coming back to reception. A Wall Street Journal is lying open. The special-interest story is about PerformCo. What does it say?” (Pause.)
“Beep beep. The bus is waiting outside.
“You walk out to the bus.
“The driver says, ‘Now we’re going to one of our premiere locations. It’s a real model for the industry.’
“The windows fog and the bus rumbles. Then the windows clear and the bus stops.
“You exit and walk into the building. As you enter, you see a hallway leading to offices, so you walk that way.
“You wander the hallways, remembering how things look.
“You come across two employees in the hall. They are talking about why they work here. You overhear what they are saying.
“As you continue walking, you see an open room with someone giving a presentation to a roomful of people. There are slides on a screen.
“The speaker says, ‘These are the three accomplishments that have driven our success in the last x years.’ You watch as a slide with three bulleted items comes up. Read what the slide says. Remember it.” (Pause.)
“Beep beep. The bus is waiting outside.
“You hurry to the exit.
“The bus driver says, ‘I hope you’ve enjoyed your trip. You are a lucky group of people. Not many get to take this trip. But now it’s time to return.’
“The bus begins moving. The windows fog, and then they clear.
“You are back at your building. You know you will remember the most important things you saw and heard.
“The bus doors open. You step forward. As you step down from the bus, a cool breeze brushes your face. You feel energized and refreshed. You enter the elevator and watch the floor numbers count up. As the elevator goes up, you feel more and more refreshed and energized. 1, 2, 3 … 10. The memories from your trip are very clear.”
Quietly and individually, have everyone write on a notepad the most important things they saw and heard on the trip. This is a personal list. Later, the participants will select the most important of their recollections.
Pass out large 8-by-6-inch Post-it Super Sticky Notes from 3M or similar large sticky notes. These should be the type without lines, with the adhesive on the long side. You’ll want about 40 cards for the entire group. If your group has eight people, that equals five cards per person. Have them write down one idea per card, using only five to seven words. Write in large block letters so that everyone can read it when it is posted on the wall. Emphasize that people should write only one idea on each card, or they will write long paragraphs with multiple ideas. If this happens, just rewrite the card before you post it.
As the facilitator, you should now use an affinity diagram process to get dynamic discussions going about the content of the cards as you post them on the wall. Collect a few cards and post them. (Learn more about using affinity diagram processes on my website: http://www.criticaltosuccess.com). Let the team group and regroup them into affinity groups with common intent. Add more cards to the wall, and group or regroup. The important thing to realize is that the intent of each of these groups of cards will form your vision statement.
After you have reorganized and discussed the groups of cards and everyone is satisfied with the groupings, give each group a concise name.
The names of each of these groups will become the core of your vision statement. The actual construction of a final statement is best left to a small group of two or three people who are good wordsmiths. If you attempt to write a strategy statement with a group of more than three people, you will be in for a long, tedious process that will devolve your vision statement into nothing more than a boring platitude.
Developing a vision statement in this way may not create a vision statement with quantitative, finely detailed goals. But it can capture the BHAG and create an inspirational vision.
You will use the work here to move forward to a Strategic Destination Statement like that described near the end of this chapter. It is the Strategic Destination Statement that precisely defines what your organization will be at a specific time in the future, who your customers will be, and not only what your value proposition for them will be, but also how you will deliver it. Getting to a precise Strategic Destination Statement is critical, because it is your springboard to your Strategy Map and Balanced Scorecard.
Values
Values are the things that the people in the organization believe in. Values determine how people act, what their ethics are, and what their behaviors are as they go about their business. Value statements come from the people and from what their leadership values. Values exist in the culture and are promoted by the leaders. It is rare that values can be instilled through training classes and workshops.
Upon returning from business trips, I sometimes go out of my way to stop at a Nordstrom department store here in northern California. On one side trip I stopped to look for a tie and ended up buying a pair of dress pants, a couple of shirts, and a tie that wasn’t the one I’d originally wanted. The pants needed some alteration and were shipped to my home. The whole process took about 30 minutes, and I enjoyed the conversation with the young clerk who helped me.
Almost two months later, I stopped at the same Nordstrom, hoping to find the tie I had originally been looking for. As I walked toward the men’s department, the same young clerk stepped forward and greeted me by name. It had been two months since we had talked for a scant 30 minutes, yet he remembered my name. This type of caring for people—not “customers”—isn’t learned through a value statement. It is in the culture of the organization, and the culture re-creates itself as the organization hires new people who fit the culture. The value statement comes from the culture and how its leaders live and act.
It isn’t hard to find examples of value statements on the web. Here are some examples from famous organizations:
Science-based innovation
Profit, but profit from work that benefits humanity
No cynicism
Nurturing and promulgation of “wholesome American values”
Fanatical attention to consistency and detail
Examine your value statement to make sure that it includes your beliefs and how you act.
Developing Your Strategic Assessment
Strategic assessment is the evaluation of how and where your organization fits into its environment. This is a Darwinian “fit.” Your strategy must find the fit that will enable your organization to prosper and grow while fending off voracious competitors.
In your strategic assessment, you must evaluate external opportunities and threats. Define how you can take advantage of those external opportunities and neutralize or sidestep the threats. Many tools and models are used in this process. Here are some of the most popular:
A PESTEL analysis evaluates large-scope external threats.
Porter’s 5 Forces model is widely used to assess near-scope industry and competitive threats.
A SWOT analysis evaluates your organization’s strengths, weaknesses, opportunities, and threats from an internal perspective.
This section briefly describes these tools. More information is available in strategic planning books and on the Web. Additional references and whitepapers are available at my website, http://www.criticaltosuccess.com.
Defining Your External Environment by Using PESTEL
You can use PESTEL, also called PEST or STEP, with groups to assess the external environment, pressures, and threats that may affect your organization’s business. It is a good process for shifting from an inward to an outward focus. PESTEL reminds people of the external forces outside their control that they must plan for. You should use a PESTEL analysis along with an industry analysis such as Porter’s 5 Forces and an internally focused analysis such as SWOT.
PESTEL considers the external influences of the following environments:
Political:
Election changes, public policy shifts, war, tax changes, terrorism
Economic:
Consumer confidence, inflation, economic growth and trends (regional, national, and international), government funding, new business formation rates, job growth, unemployment, exchange rates, foreign competition, tariff changes
Social:
Demographics of the workforce and the target customer, fashion and lifestyle shifts, population movements, immigration and emigration, occupational trends and needs, economic profiles, health shifts
Technological:
New production methods, new fuels and energy sources, communication methods and channels, increased obsolescence rates, production equipment and processes, outsourcing
Environmental:
Environmental regulations, public opinion, environmental risk/accidents, recycling
Legal:
Employment law, industry law and lawsuits, consumer protection law, international law and regulations
PESTEL has advantages and disadvantages. A team of informed managers or analysts can quickly complete a PESTEL by doing little more than searching online through the Wall Street Journal, trade magazines, and business archives such as EBSCOhost. But the results so garnered are general impressions of external influences. For small and midsized businesses, this is probably sufficient. Conducting an in-depth, quantitative external market analysis requires dedicated market analysts and can take weeks or longer—and cost a lot.
In surging markets that have raised the prosperity of all companies in an industry, a PESTEL analysis can help the team realize that their fortunes will change when the environment changes. For example, a change in the governing political party may result in a tax policy change that will affect their client’s ability to purchase.
PESTEL is also useful in quickly evaluating a new market your organization is considering. Although you may not be worried about competitors or functional replacements, PESTEL may reveal other external conditions.
To perform a PESTEL, do the following:
The one downside of doing this with a team of close executives and managers is that they have all drunk the same Kool-Aid. It can be enlightening to have an outsider give a contrasting opinion.
Defining Your Industry Environment with Porter’s 5 Forces
I remember the first time I read Michael Porter’s seminal book Competitive Strategy: Techniques for Analyzing Industries and Competitors.4 Like Balanced Scorecards, it was a slap-your-forehead type of experience. His book and its analysis of the growth and death of industries and competitive positioning was probably one of the kick starts that moved me to become one of Microsoft’s first 12 consultants. Porter’s models used framework and structure to make competitive analysis and strategic positioning easy to understand.
Porter’s 5 Forces model analyzes the industry and competition surrounding a business. It helps you understand how consumers and competitors affect each other in the market. Unlike PESTEL, which looks at the large external environment, 5 Forces looks only at internal and marketplace factors that directly affect an organization.
Here are the 5 Forces and some of their factors that affect businesses:
Substitute products:
How much power can your consumers exert by switching? Products that can easily be substituted affect your ability to raise prices. Switching is affected by how easily buyers switch, the perceived differences between products, and product quality or features. When more products are close to you, you are less able to raise prices.
Entry of new competitors:
How likely are new competitors to enter the market? If you earn a high margin on your products, competitors are more likely to move into your area. Prevent new entrants by raising barriers to entry via methods such as registering patents or controlling distribution channels.
Competitive rivalry:
How much power do you have compared to your rivals? Each industry has its own model of competition. Some resort to intense price cutting; others expand advertising and promotion.
Consumer bargaining power:
How easily can consumers lower prices? Consumers can affect pricing when they have competitive pricing information, when there are few consumers and many competitors (switching costs), and when they can easily find substitute products.
Supplier bargaining power:
How easily can suppliers raise prices? Suppliers can affect pricing when the product they supply is rare or unique, when supplier switching costs are high, and when there are few suppliers and many competitors.
You can use the same facilitation methods as those for PESTEL to identify the 5 Forces for your organization.
Defining Your Strengths and Weaknesses with the Balanced Scorecard SWOT
Whereas the PESTEL and Porter’s 5 Forces look outside your organization, SWOT looks within. SWOT is the tool most business people use for strategic analysis.
SWOT stands for
Strengths:
Where your organization is strong
Weaknesses:
Where your organization is weak
Opportunities:
Where your organization has great potential
Threats:
Where your organization could be at risk
An important point to remember is that a SWOT must be done with a specific strategy in mind. It is against this strategy that you compare your strengths, weaknesses, opportunities, and threats. This may mean that you have to use a process of defining a “straw strategy,” developing a SWOT, revising the “straw strategy,” reanalyzing the SWOT, and so forth until you create a viable strategy.
If you are in a rapidly evolving marketplace and are using the product/service development methods described in Lean Startup by Eric Reis (Crown Business, 2011), you need to do a new SWOT at each pivot point—points where you need to reinvent your organization.
Many consultants do a SWOT with just four columns—one for each letter—and a long bullet list under each letter. You can add greater depth and insight to your SWOT by building it around the four perspectives used in a Balanced Scorecard. Doing so also generates a lot of discussion among the executive team. The four perspectives are
Financial
Customer
Internal operations
Learning and growth
These perspectives are described in detail in Chapter 4.
Begin your SWOT session by creating a grid on the wall. Use large 8-by-6-inch 3M Post-it Super Sticky Notes for table headers. Build your grid with large cell areas, and arrange headers like this:
Strengths
Weaknesses
Opportunities
Threats
Financial
Customer
Internal Operations
Learning and Growth
Guide the executive team through individual brainstorming, and have them write down their individual thoughts on the sticky notes. You might want to use a different color Post-it for each vertical column. Allow the executive team to decide where they want to put notes, but limit the number of notes per individual so that they must set priorities. Doing so also keeps the table from becoming too crowded. The group should discuss each note and decide where to place it.
When this is done correctly, you should end up with a lot of discussion, new understanding, and a color “heat map” that identifies areas you should focus on or avoid.
Developing Your Strategic Destination Statement
The useful Harvard Business Review article “Can You Say What Your Strategy Is?” by David Collis and Michael Rukstad (April 2008)6 outlines multiple strategy tools. One of these tools illustrates a way to build a Strategic Destination Statement. The Strategic Destination Statement is like a vision statement with specific details of what will be achieved in a specific time frame with specific offerings to specific customer profiles. The Strategic Destination Statement is essential to developing a well-constructed Strategy Map.
