The Scorecard Solution: Measure What Matters and Drive Sustainable Growth

INTRODUCTION

It drives me crazy when I can’t get answers. I see erosion in our revenue and no one seems to be able to explain what is happening to cause it. All I get are opinions and guesswork. How can I address the problem when I don’t even know where or what it is?

Do you share this frustration? A CEO made this comment to me during my research for this book. She wasn’t the only person who said something similar. What I learned through multiple interviews with executives is that business leaders live in fear of two problems: (1) not being told the truth about the health of the enterprise and (2) having to make major, strategic decisions with too little information.

Unfortunately, the causes of these problems are usually baked into the system.

Even the most approachable leaders have subordinates who are reluctant to disclose looming performance deviations or organizational weakness. We’d like to believe that the messenger never gets shot, but there are plenty of messengers in companies across the land who would rather not test that premise.

As a result, a leader receives sanitized information. This is a dangerous scenario for a decision maker. Without comprehensive and current data about the organization’s capabilities, the leader is forced to make investment decisions and allocate resources based on partial facts.

In addition to not having the facts, leaders may be unaware of their own mindset, which can add to the dilemma. During my work with CEOs and senior leadership teams, I’ve found that they have a bias toward the belief that all is good. They want to believe that their organization is rock solid and delivering the best possible results, given market conditions. Many leaders also are prone to maintaining the status quo. Because they are somewhat in the dark regarding the health of the enterprise, there is no urgency to address weaknesses they don’t see, particularly if the weaknesses have not yet shown up in the numbers. Why fix what isn’t broken? That becomes the mantra. If current performance of the business is acceptable, why rock the boat? After all, change is tough on an organization, right? Why be bold for the future and risk your present success?

The reality is that present success is not self-sustaining. Without preventive maintenance, something is always breaking.

The Scorecard Solution will solve these problems by giving you a practical tool for maintaining a crystal-clear and constant view of your business that will enable better decision making. That tool, the Organizational Prowess Scorecard, delivers the unvarnished, unemotional facts about what is really happening in areas of the company you can’t see every day. It has three major components:

1.   Strategy Planning—what are we going to work on?

2.   Execution Framework—how do we get it done?

3.   Talent—who will do the work?

In my experience these components all need to be in top form for a company to thrive. If you have, for instance, a bad plan, you’ll squander opportunities. If you have a good plan, but aren’t able to execute it within an acceptable time frame, you’ll lose ground competitively. And if you have too many B players in mission-critical roles, key goals will be missed.

Each component is broken down into measurable subcomponents that are assessed and given a numerical score, which, when tallied, will show you how you’re doing in a subcomponent, a major component and, most important, overall.

The Organizational Prowess (O.P.) Scorecard is built on a scale from 10 to 100 and reflects four levels of organizational competence. From best to worst, they are:

Agile: 80–100 points—Your company has an enviable speed to market, a culture of innovation, and exceeds financial targets.

Resilient: 60–79 points—Your company typically achieves the revenue target but overachievement is elusive. Existing capabilities make stretch goals impossible to attain.

Vulnerable: 30–59 points—Your company regularly misses financial targets, suffers talent erosion, and has minimal innovation.

Lagging: 10–29 points—Your company has a passionless culture and doesn’t innovate. Without changing, its survival is in doubt.

The characteristics of these four categories of organizational health are explored in depth in Chapter 3. The point to remember for now is this: The truth unveiled by the scorecard translates into great power for a leader. Simply knowing where the business resides on the Organizational Prowess scale will give you the confidence to act. You’ll also know what to act on and how to prioritize your actions.

A division president of a multinational organization who was an early adopter of the scorecard had this to say: Learning the truth about your business capabilities can be a humbling experience. For example, one of the areas that is evaluated through the scorecard in a very detailed fashion is strategy planning. I used to feel pretty proud of how my team planned, since we have had such good financial results. Then I discovered through the scorecard that we were leaving huge opportunities on the table. We were not giving ourselves a chance to identify true breakout plays that could have really accelerated our growth. We used to apply a very traditional method of choosing annual strategies that were in our comfort zone. What we learned is that our strategies were really nothing more than continuous improvement efforts, not bold strategic initiatives. The scorecard also helped us appreciate the value in market intelligence and competitive insights as we plan the future. We never bothered with that kind of information in the past.

Another business leader shared this with me in regard to her experience with the execution framework portion of the scorecard: The scorecard helped me to better understand all that goes into successful execution. The numerous subcomponents that reside within the execution framework exposed all the gaps in our old process. We learned how to create strategy dashboards, form execution teams, hire the right experts, etc. We now are equipped to actually do what we committed to when we created yearly goals. It used to be that we would establish our strategies at the beginning of the year and then basically hoped people could make it happen. We had quite a few misses that equated to material revenue shortfalls.

The Scorecard Solution will equip you to deliver on ambitious goals as well.

A scorecard implementation will include these five critical success factors:

1.   Content detail

2.   Scorer selection

3.   Timing

4.   Analysis

5.   The resulting action plan: your Organizational Prowess Playbook

CONTENT DETAIL

In Chapter 3 I lay out the subcomponents for the primary categories of strategy planning, execution framework, and talent, which I have developed based on research and actual scorecard implementation in companies big and small. Some modification is fine, but don’t reinvent the wheel lest you bias the wheel.

The subcomponents are specific, measurable, and given a numerical rating; there is no gray, no room for opinion, and no need for polite shading. For example, if before you implemented your scorecard someone were to ask you how good your business is at execution, you probably could only speak vaguely: We’re pretty good, or I’d say we’re better than average. Those answers don’t convey much of anything because they’re based on impressions, not fact. Perhaps you wouldn’t even be too sure of the answer. After implementing the scorecard, however, you could respond: Our last score for execution was a 34 out of 40 points, and that reflects an 11-point improvement from the assessment we did six months ago. Specifically, we are working to refine our strategy team dashboards and tweaking the incentive plan to encourage more discretionary effort for those in technology and product development. Which answer will give the listener more confidence in your company?

SCORER SELECTION

Be particular when determining who will undertake the data gathering. One CEO who applies the scorecard every 6 months has a good system: I use three people to collect the scorecard data. One is an external consultant who knows our business and processes. The other two are senior leaders whom I trust to be unbiased and unemotional. The three act as counterbalances, so I know I will get the unvarnished truth. We then apply an audit step: Two other managers review the team’s work and poke holes in their findings. While it isn’t essential to engage an outside expert, as this CEO did with the external consultant, it is considered a best practice when the goal is to achieve a detailed and accurate outcome.

TIMING

One of the attractive features of the scorecard is that it typically takes 2 to 6 weeks to implement, depending on the size and complexity of the business, and it can be applied repeatedly. I would recommend twice a year. It is low impact and does not disrupt the normal flow of business processes. It works easily in all sizes of business environments and can be applied to departments and divisions as well as entire organizations, large or small.

I have found that an initial implementation works great just prior to the annual strategy planning process. Because the scorecard will reveal important details about organizational capabilities, you will have valuable insight as you plan the future. For example, if your planning cycle starts in October for the following year, apply the scorecard in August. I had one client company that had a tendency to develop very ambitious goals each year. And each year, the leadership team then wondered why the company consistently fell short in its results. The company president said, Our senior team would go offsite and get pretty overzealous as we planned the next year’s budget and strategic initiatives. We thought we could do anything. Once we had the data from the scorecard, we were humbled by the reality. We learned that the biggest impediment to achieving stretch goals in prior years was that we lacked the right talent. We had the number of people needed, but we learned that we had ‘B’ players in some mission-critical roles. This was holding us back.

ANALYSIS

Interpreting results is the step that leads to the development of your playbook. The CEO mentioned earlier in this chapter who uses three individuals to collect data and then has two others audit the work of those three brings everyone together to review the information. The six of us get around my conference table and spend half a day going through every detail. I actually enjoy this session because it is collaborative and informative. I’m learning things about my business I would never know about otherwise. As we go through each portion of the scorecard, we record the weak spots. Once we have analyzed everything, we can move directly to the action planning.

ACTION PLAN: YOUR ORGANIZATIONAL PROWESS PLAYBOOK

Scorecard data without a roadmap to address deficiencies is useless. Treat this new knowledge like a strategic initiative—assign ownership, develop milestones, track progress, and reward success.

The first time you implement the scorecard you may find yourself with multiple areas to address. Don’t let a robust playbook discourage you. Stay diligent and focused, and take heart that you now know what you have to do while your competitors, who aren’t implementing the scorecard, remain in the dark.

Repetitive applications of the scorecard will reflect steady progress in your numerical score and organizational competencies. You and the entire team should take pride in those accomplishments. A division head of a global enterprise explained the results his company enjoyed after applying the scorecard solution this way: We post our scores now. We have the history of three scorecard implementations, each showing improvement over the prior assessment. We started in the vulnerable range and have moved steadily into the resilient stage with an eye toward agile. Our entire workforce takes pride in what we have done. More important, our financial results are ahead of plan. We are actually overachieving our targets.

CHAPTER 1

ORGANIZATIONAL PROWESS DEFINED

Virtually all businesses, from the early stage enterprise to the Fortune 50, face adversity at various times in their life cycle. Why does one company thrive and another struggle when both are within the same industry and economic climate? Why does a company deliver exceptional growth three years running while a competitor struggles to produce good results for just one year and then regresses to a no-growth phase? What are the distinguishing characteristics that equip a business to surpass the competition, even in tough economic times? Why do some companies die, despite having a valid model, a viable product, and a waiting market?

These questions haunted me. I wanted to unearth the not-so-obvious assets some companies possessed that led to sustainable growth. Simply reading dated accounts of business success or failure rarely gives us the insight we need to understand what occurred within the fabric of the enterprise. We rarely get a glimpse behind the curtain. We are left to speculate about the root cause of the outcome. What was going on leading up to the stellar earnings report? What prompted the decision to downsize the workforce? Understanding the root causes behind these events is key for a business leader desiring to drive growth and avoid the pitfalls that lead to disappointing outcomes.

As leaders, we can materially benefit from an understanding of how businesses minimize downturns and sustain a growth trajectory, even in turbulent times. Because we are external observers when it comes to the performance of other companies, we see only the outcome. We don’t have the privilege of seeing what occurred within the trenches of the resilient organization that recovered swiftly from a business setback and went on to create a hyper-growth trajectory and surpass the competition.

This book unveils what is normally hidden from view, providing you an opportunity to learn and apply the keys to sustainable growth. That is where the principles of Organizational Prowess come in.

My own business experience in multiple organizational settings coupled with numerous CEO discussions during research for this book led to clarity regarding the drivers of optimum performance. Those drivers and their proper application are what I call Organizational Prowess. The term sounds interesting, but let’s not leave it at that. Dissecting the term to provide a deeper understanding is warranted. Here’s the definition of Organizational Prowess:

Leveraging data and talent to execute on strategic imperatives within compressed time frames.

Within this one sentence reside five essential organizational attributes that, when mastered, lead to accelerated revenue growth and profit. The best of the best excel in these areas. It is easy to read right over the essence of the definition. A closer examination allows us to appreciate the power behind the words. Let’s take the elements of the definition one at a time.

LEVERAGING DATA

This capability can elude many leaders, particularly those of early-stage or mid-market companies, because it generally requires an investment that will not show an immediate or obvious return. In lean organizations it takes a commitment to put resources behind business intelligence (BI), but those that make the commitment reap dividends in short order. Proficiency at building both external and internal data-mining capabilities has become an indispensable asset for any business aspiring to be counted among the fast-growth enterprises within its industry. Consciously deciding to make BI a corporate asset for both internal and external environments is an essential component of Organizational Prowess, and there is good reason for it being the first element of the definition.

Companies that choose to make the investment in data analytics and BI typically start with the internal environment. This is the right place to start, as the return on investment can be swift and material. Understanding leading indicators and building the tools for frontline managers to track daily activity and to course-correct in real time is a fundamental building block for a hyper-growth enterprise. This capability is central to staying on or potentially exceeding the intended performance path.

While the internal application of business intelligence provides measurable lift in results, do not ignore the significance of external data. Building strategies and execution plans without the benefit of marketplace information is risky. The business that makes it someone’s job to pay attention to and assess what is occurring outside of the business will have a competitive advantage.

Gathering external data includes:

•   Tracking the competition in order to understand strategic intent

•   Visiting with customers to gauge their approach to their marketplaces and to understand long-term needs

•   Paying attention to activity in adjacent sectors, such as your supplier network

•   Building relationships with investment bankers, who have analysts scouring the external environment constantly

External data from multiple sources should be a vital part of any company’s strategy planning. Without it, leaders fall back on opinions and fragmented pieces of information to plan the future.

Large organizations with deeper pockets will typically invest in market intelligence, and that becomes someone’s full-time job. In small or mid-size companies market intelligence may not be gathered by just one person, but it is best to identify one person who will own data synthesis and organization. Ultimately, the information has to be assembled in aggregate and brought to the senior team in such a way that decisions can be made. Fortune 100 companies make a habit of scanning their marketplace and adjacent marketplaces regularly and have entire staffs devoted to this exercise. Market intelligence is a vital aspect of strategy planning, yet very few mid-size firms do this well. Instead, there is a risky reliance on anecdotal information, which can lead to bad assumptions and flawed investment decisions.

If you are part of a mid-market business, you may have to become creative when it comes to the way marketplace data is collected. One mid-size client assigned competitive intelligence to the vice president of product development because that person had a good overview of the marketplace, given her role. She, in turn, enlisted the help of a few salespeople to gather specific pieces of external data pertaining to competitors. Interestingly, much of the competitive information came from clients and prospects. It’s amazing what a customer will tell you about your competition if you just ask. There is always a way to stay abreast of external developments if you are intentional.

Do not allow the lack of internal resources to deter you from building a data-gathering capability. Unfortunately, many organizations do not utilize market and competitive intelligence during the planning process. The leaders of those companies rely exclusively on what they individually know. Very little, if any, validated external data is brought into the discussion. The planning is therefore flawed from the start. Decisions are made in the absence of critical information, and that is a dangerous scenario.

In Chapter 2, you will be introduced to a business and leadership team that weathered a very trying business cycle. It’s a true story, and one that reveals the risks associated with not paying attention to competitive movements. In that company’s case, a competitor was poaching talent and planning a push into a new geographic territory that was a stronghold for the business you’ll get to know. These activities went on unnoticed. A functioning competitive intelligence capability would have detected that the competitor had hired a regional sales vice president for the Northeast, and a scan of social media would have revealed job postings for multiple sales reps. Warning signals like that allow you to take countermeasures rather than be blindsided later.

LEVERAGING TALENT

Talent, as you might expect, is one of the most significant elements of the Organizational Prowess (O.P.) definition. If you are fortunate enough to be in a fast-growth business, you may have experienced a talent drain at some point in the journey. Companies that deliver significant growth year after year can become victim to diminished talent density, as illustrated in Figure 1-1. This doesn’t necessarily mean good people are exiting the business. It means that growth puts stress on the talent quotient. Growth leads to business complexity, and complexity requires more expertise in the business. Simply put, the experts who are in the business today won’t be sufficient as the organization passes through new revenue thresholds. Organizations that anticipate this dynamic and build the capability to develop and acquire needed expertise as growth occurs are demonstrating a key aspect of Organizational Prowess.

EXECUTION

This portion of the Organizational Prowess definition is arguably the most talked about but least understood aspect of organizational performance. Execute is one of the most common terms in business. We like the sound of it and speak of it often. It denotes action and progress. Makes us feel good—getting important things done. Count the number of times you hear the word in your next senior team leadership meeting.

Figure 1-1

Business Growth vs. Talent Density

Unfortunately, an overused word or expression can dull the senses over time. The true meaning eludes us because the word becomes so ingrained in our vocabulary. Consequently, very few leadership teams have learned how to actually institutionalize an execution framework. Research clearly points out that the vast majority of strategies are not well executed. Robert S. Kaplan and David P. Norton, in their work The Balanced Scorecard: Translating Strategy into Action (1996), state that nearly 90 percent of well-thought-out strategies are poorly executed.

This is an unfortunate reality. Too many leadership teams allow a good plan to go to waste. To do strategy planning well takes time, resources, and hard work. Why, as a leadership team, would you not want to do everything in your power to bring ambitious goals to fruition?

The good news is that what it takes to execute the plan is doable and within your grasp. The means are available to any senior team with the appetite to apply the discipline to build an execution framework. In Chapter 5 you will learn what makes up the execution framework and how to build the requisite capabilities.

STRATEGIC IMPERATIVES

This portion of our Organizational Prowess definition seems rather mundane on the surface. All senior teams plan and create strategies. However, there are a few critical success factors associated with the development of strategic choices that should not be overlooked. The preparation prior to the traditional offsite planning work session, coupled with the agenda used during the planning meeting, has everything to do with an organization’s ability to translate the written strategy into results on the profit and loss statement.

As a leader, you must not underestimate what goes into a quality strategy planning process. There is much more to it than the 2-day offsite with the team and a facilitator. Also keep in mind that planning is not exclusively the domain of the CEO and senior team. Each functional leader in the business, from department head to division president, can and should adopt a planning protocol.

The overarching corporate strategies are the foundation for downstream departmental planning. Regardless of the level, the same discipline and success factors associated with quality planning need to be applied. Chapter 4 addresses the elements of a vibrant strategy planning process.

COMPRESSED TIME FRAMES

Accomplishing business milestones within compressed time frames is an attribute found within organizations that have adopted the Organizational Prowess principles. Taking less time than planned to do what you said you would do is a rare virtue in the business world. Whether you are developing new technology, introducing a new product, making a key hire, or building a new plant, speed can provide a competitive edge. Terms like nimble and agile" often are used to describe a business that moves swiftly. Speed is an admirable trait and the ultimate yardstick of