Strategy & Leadership recently met with Drs. Robert S. Kaplan and David. P.
Norton to discuss the ideas in their new book, Alignment: Using the. Balanced ...
An interview with Dr. Robert S. Kaplan and Dr. David P. Norton Interview by Strategy & Leadership
Strategy & Leadership recently met with Drs. Robert S. Kaplan and David P. Norton to discuss the ideas in their new book, Alignment: Using the Balanced Scorecard to Create Corporate Synergies (Boston: Harvard Business School Publishing, 2006). It is their fourth book together. Dr. Kaplan is Baker Foundation Professor at Harvard Business School. Dr. Norton is President of Palladium Group, Inc. Both are co-founders of the Balanced Scorecard Collaborative, a Palladium company.
As a business issue, the need for better alignment has been around a long time. What is it that has caused this latest collaboration between you on the topic? Dr. Kaplan: Alignment is important because it is one of the five principles to become a strategy-focused organization. In our own research, we’ve studied companies that have become aligned and as a result achieved new levels of strategic performance. We felt it was sufficiently important that it deserved its own book and its own attention. Most companies that have multi-business units and multiple shared services actually start from a deficit position, that the corporate headquarters for such diversified organizations incur costs. There's the corporate headquarters, there's the compensation of the corporate officers, and that's a subtraction from all the profits and the value that's being created in the business units. If the corporation doesn't create synergies, then it's just subtracting value from its collection of business units. At the very least, it has to make up for its own costs, but we feel they should be able to do much better than that. And the way they do much better than that is by alignment. How do they make their collection of business units, support groups, and shared services, more valuable than if these units operated autonomously? In economic terms, how do they generate and capture economies of scale and scope? This requires conscious action by the corporation. It doesn't happen by leaving these entities on their own. Left on their own, they'll pursue their own strategies in their markets against their own competitors, but they won't integrate with each other and they won't share customers or processes or employees to create additional value.
In our Alignment book, we examine the various ways in which corporations do create alignment, and I must say even though in retrospect it was obvious, as we started to characterize the different ways corporations do so, that a kind of ad hoc taxonomy existed. It was not until late in the writing of the book that Dave and I kind of looked across the table and realized that the Balanced Scorecard provided the natural framework for describing corporate synergies. Some corporations create the synergies through how well they manage the financial perspective, balancing resource allocation and growth and governance across all their business units. Others create synergy through their sharing of customers across multiple business units to provide a better value proposition for those customers than what each business unit could do operating on its own. Some get some economies of scale through their process perspective, sharing manufacturing, distribution, or research and development, and that's an economy that they get, but it has to be conscious and it has to be managed. Finally, one of the most intriguing sources of synergy is in the area of learning and growth where you use your diversity to give employees a much varied and richer career experience, moving from business to business, moving from country to country, region to region, and continuing to build their professional capabilities and experience and expertise. Companies that actively manage that employee career development process really will have much better candidates to become CEOs than very narrowly focused companies in a single industry or in a single region. There are also opportunities for knowledge-sharing across diverse units. So even though businesses can be quite different, many processes are common to these business units. A terrific new practice in
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any one of the business units, for example, if it can be identified and captured and shared, can benefit all the units. So there are many ways in which a corporation can create value, but it has to be identified and it has to be created and signaled at the corporate level, because we found it's not a natural act for business units to cooperate and interact to create these synergies. In getting the organization aligned, can one can start at any level? Dr. Kaplan: There are multiple paths, but ideally you should start at the corporate level. Wherever you start – at the SBU or shared service level – the goal should be organizational alignment. The key is understanding where your organizational unit fits and being sure that you have what Ingersoll Rand calls “dual citizenship” that can create both local and enterprise value. Is there a process organizations can follow to get aligned? Dr. Norton: For an idea to be useful, there has to be a process to actualize it. In the knowledge economy, value is created in intangible ways. What we're describing is a source of value, synergy, that's being created by alignment. In the cases that we researched, the value is dramatic. There's an opportunity for organizations to create value where it hasn't existed before. It starts with aligning the organization to its strategy through the Strategy Map which describes and communicates the strategy on a single page. Everyone in the organization can understand and see where they fit, where they can contribute to the strategy. Every organization that we studied that has created successful alignment has used some variation of the Strategy Map and the Balanced Scorecard to put the stake in the ground and say ‘here's where we’re going.’
that begin to organize around strategic themes, breaking across the silos and barriers of organizations and creating alignment through a virtual organization structure with accountability by theme. Finally, we’re seeing organizations measuring accountability. If you can’t measure it, you can't manage it. Measurement shows you what the check points are, where the synergies are, where value is getting created, and ultimately helps weave them into a process.
“There are many ways in which a corporation can create value, but it has to be identified and it has to be created and signaled at the corporate level.” Generally, in the planning process, when you take objectives and communicate them to the organization, you have the framework or the backbone of an architecture that you can use to create an alignment management process. Alignment is a distinctive competency – complete with tools and techniques – that you can learn and apply. □
There's also a structured process whereby an organization cascades its map and scorecard from one level to the next, either vertically or horizontally out to its support units, out to its suppliers, out to its customers. The strategy map serves like the North Star – you're navigating your company, you're getting alignment by getting everyone to point at this strategy map and are guided by it. In leading edge companies we’ve begun to see the emergence of structure to manage alignment. For example, we're finding on some companies' organization charts a position of ‘vice president of alignment’. We're finding organizations now
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