Using Balanced Scorecard to Create Synergies
Volume 20, Number 1 Article by Rishi Bhatia March, 2008
Alignment: Using Balanced Scorecard to Create Synergies : By Robert S Kaplan and David Norton, 2006, HBS Press, pp 302, Price: $23.10. :
Alignment is the fourth joint book written by the duo, Kaplan and Norton. Alignment is not a new subject and it has been discussed extensively in the literature. This book focuses on the integration of all the businesses of an organisation by developing strategic maps and balanced scorecards for each and every unit ranging from the corporate office to the business units to support offices and customers as well as suppliers. The strategic maps and balanced scorecard are developed through strategic themes.
The basic question that arises in this process is: Is integration of everything the best way for alignment? Kaplan and Norton hold that high performing organisations perform better than others because their processes are coordinated; and that any organisation can become a high performer if all its units are aligned. This coordination process forms the core of the book, which is primarily aimed at conglomerates with highly diversified businesses. Through alignment, such enterprises will be able to create synergies. Enterprise-derived value is generated by operational units creating more value than they would, had they been operating autonomously. The set of objectives which describe enterprise derived value is called an enterprise value proposition. This requires a methodology like balanced scorecard (BSC) and strategic map. The sequence of the alignment process is as follows: first separate balanced scorecards should be developed for each unit, then the headquarters is aligned with operating units, thereafter aligning internal support and service units and then external organisations. The structure of the book follows this sequential approach to the alignment process.
The alignment process includes the alignment of strategy and the organisation structure. The first chapter reviews different types of organisation structures – simple, centralised, divisional and matrix – before concluding that as there are flaws in all these types, organisations can use the balanced scorecards for aligning corporate structure. BSC provides a way to categorise enterprise value propositions that can contribute to corporate synergies. Subsequent chapters deal with the creation of a balanced scorecard for aligning each of the strategies – financial, customer, process and services. The strategies of the support functions like human resources, information technology and finance should also be aligned with the strategies of other business units by creating balanced scorecards and strategic maps for each function.
The authors propose two models for cascading the alignment process: 1) the Franchise Operations or top down Common Value proposition and 2) the Holding Companies or bottom up Common Value proposition. While the latter has several advantages over the former, cascading can be done either way, provided the scorecard ultimately aligns the business level and enterprise level strategies. Most companies follow an iterative process, in the sense that the scorecards are revised until all units reach a common theme. Besides aligning the processes of an enterprise, BSC can also be applied to the corporate governance process as it will give clear information about the organisation to all its stakeholders. The final component of alignment is to build scorecards with external partners, viz suppliers, customers and alliance partners. Customer scorecard and alliances scorecard can be developed to enable growth in business as it helps in improving relationships, building trust across the organisation and reducing transaction costs. In the changing business environment there is a pressing need to manage this alignment. The effectiveness of BSC lies in clearly explaining the strategy at each level and linking the strategy to the management system.
The book concludes with the suggestion that alignment, which is the need of the hour, can be achieved by sharing common strategic themes across all business units of an enterprise. The concept is similar to Management by Objective (MBO), in which every department in an organisation should have short term objectives which should be aligned with the long term objectives of the organisation. The book provides a rich set of examples of organisations, with a visual display of themes and initiatives. The case studies used in the book are interesting and varied.
However, the cost benefit analysis of implementing BSC for alignment has not been addressed in the book. The basic problem of BSC is that it states too many goals and these are difficult to achieve, specially in a conglomerate, where there are chances of clashes arising among business units. This book calls for change, which takes time. Though the creation of the balanced scorecards might just take a few months, it may several years before the whole process is established throughout the organisation. Eight check points have been provided in the book which measures alignment. In today’s dynamic business environment, if more than two checkpoints are unaligned, it may call for restructuring of business leading to the development of new strategic themes and new balanced scorecards. Moreover in an enterprise which is operating in multiple industries, the sharing of common themes and similar balanced scorecards does not seem to be very feasibile.
Alignment will remain a topic of interest to people strongly involved in the business of business. The book by Kaplan and Norton raises an important issue which the authors have also discussed in their earlier books. Understanding this book requires prior knowledge of balanced scorecards and strategic maps and for those who have read both the books, there is nothing new on offer.
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