Strategic Management: Developing Sustainability in Southern Africa, L Louw & P Venter (eds) OUP.

3.7 CHALLENGES OF CREATING A CLEAR STRATEGIC DIRECTION

A contrary belief holds that vision and mission statements have little tangible value.' school of thought argues that vision and mission statements are nothing more than a fad and an attempt at window dressing. In some instances this is true if: The vision and mission statements are not accompanied by corresponding manager behaviour. The articulated thoughts are not communicated to stakeholders and there is lack of 'buy in'. The statements do not produce results unless coupled with an overall strategic education process. To address these challenges, strategic direction should be translated into operational objectives that enable all members of staff to understand their role in the bigger picture. This is discussed below.

3.8 TRANSLATING STRATEGIC DIRECTION INTO OPERATIONAL TERMS

It is often difficult to translate strategic direction into operational terms that provide useful guidelines at an operational level. Lofty statements about becoming 'best in class' or being an 'empowered organisation' make impressive reading material, but employees may find it difficult to translate them into operational terms. For people to embrace and act on the words in vision, mission and value statements, those statements should be expressed and communicated as an integrated set of objectives and measures that describe the long-term drivers of success. Organisations use the balanced scorecard discussed below as a means of translating strategic direction into operational objectives.

3.9 BALANCED SCORECARD

A balanced scorecard is a strategic management tool that is useful for guiding, controlling, and challenging an organisation towards realising a shared conception of the future. Kaplan and Norton developed the balanced scorecard in the early 1990s to (tend the primary focus on shortterm financial performance to include long-term strategic dimensions that deal with delivering results. The balanced scorecard enables organisations to achieve an integrated, aligned, and

balanced focus on four perspectives that collectively underpin the achievement of the organisational vision. The four perspectives are the following: Financial perspective: This perspective is based on financial performance, a lag indicator that provides the ultimate definition of an organisation's success. As it is the objective of every organisation to deliver maximum value to stakeholders, the question asked here is, 'How do we appear to our stakeholders?' Customer perspective: To survive and grow, organisations must be able to deliver quality goods and/or services that will satisfy customers' needs. The question to ask then is, 'How do we appear to our customers?' Indicators of customer success include measures such as satisfaction, retention, and growth. Internal business processes: The question here is, 'What must we excel at?' Identifying the key business processes at which an organisation must excel to meet strategic goals and customer expectations can lead to subsequent improvements in customer and financial outcomes. Learning and growth perspectives: Learning and growth perspectives describe how people, technology, and the organisational climate can be combined to support the strategy. This perspective focuses on the root causes of competitive sustainability, and asks the question, 'How can we continue to improve and create value?' These perspectives offer a balance between financial and non-financial measures used to develop a framework and a focus for many critical management processes. These processes include departmental and individual goal setting; the communication of the strategy throughout the business; business planning; capital allocation; strategic initiatives; and feedback and learning. The discussion to follow considers the development f the scorecard and focuses on the processes used to align strategic direction with short-term actions. Chapter 12 expands on this concept to provide an overview of how an organisation can use the balanced scorecard to measure performance. To capture the organisation's desired business strategy, the balanced scorecard uses four processes, namely clarifying and translating the vision into strategy; communicating Dd linking strategic objectives and measures; planning, setting targets, and aligning kategic initiatives; and enhancing feedback and learning.

3.9.1 Clarifying and translating vision into strategy

A gap often exists between the vision and mission statements, and employees' knowing w their day-to-day actions could contribute to realising the organisation's strategy. Senior executives may also agree on the words used to express the strategic statements, but each person may interpret the terminology differently. For example, if you were to ask four executives to define superior service, you are likely to receive four different interpretations. This difference of

opinion escalates when you repeat the exercise with lower management. Translating the vision into a set of objectives and measures helps managers build consensus on the organisation's vision and strategy. The perspectives of the balanced scorecard require the executives to clarify the meaning of the strategy statement by developing operational measures for the four score-card perspectives, i.e. financial, customers, internal business processes, and learning and growth. The executives must state in specific terms the 'definition of success' in each of these areas as well as their relative importance weightings. The translation of their vision into terms that have meaning to the employees who must realise the strategy will enable the employees to embrace these requirements in their day-to-day activities. In addition, the scorecard also highlights gaps in employees' skills and other resources required to pursue long-term objectives. See the Case example Standard Bank - example of a balanced scorecard, which illustrates how Standard Bank applied the balanced scorecard to indicate how they would achieve their 2010 purpose. This scorecard should be read from right to left to understand the means employed to reach the desired end goal.

3.9.2 Communicating and linking strategic objectives and measures

The second process, communicating and linking, allows managers to communicate their strategy throughout the organisation, and to link it to departmental and individual objectives. To do this, scorecard users generally engage in three activities, namely communicating and educating, setting goals, and linking rewards to performance measures. To implement a strategy successfully, it is essential to communicate with and educate the employees who have to execute it. The management team can use a broad-based communication programme to share the strategy with all employees, as well as the critical objectives they have to meet if they want to implement the strategy successfully. Mere awareness of corporate goals is, however, not enough to change many people's behaviour. High-level strategic objectives and measures must be translated into objectives and measures for operating units and individuals. To accommodate this, the scorecard contains three levels of information: The first level describes corporate objectives, measures, and targets. The second level allows corporate targets to be translated into targets for each business unit. The third level converts business unit and corporate objectives to individual and team objectives that set targets for each measure and allow up to five performance measures per objective.

The balanced scorecard approach links employee rewards to performance in all four areas, with suitable weightings applied to reflect the relative importance of each area.

3.9.3 Planning, setting targets, and aligning strategic initiatives

Many organisations have separate procedures and organisational units for strategic planning, resource allocation, and budgeting. Often senior management is responsible for formulating the strategic plan, while the financial department conducts a separate resource allocation and budgeting process to set financial targets for revenues, expenses, profits, and investments for the next fiscal year. The result is that the budget produced generally bears little relation to the targets in the strategic plan, resulting in conflicting priorities and reporting. A balanced scorecard forces organisations to integrate their strategic planning and budgeting processes, and therefore helps to ensure that their budgets support their strategies. Building a scorecard thus enables an organisation to link its financial budgets with its strategic goals. The scorecard measures can also be used as the basis for allocating resources and setting priorities by prioritising initiatives according to their contribution to the long-term strategic objectives.

3.9.4 Enhancing strategic feedback and learning

In the contemporary business environment, strategies may lose their validity as business conditions change. However, if management systems are built on the principles of a balanced scorecard, organisations can monitor short-term results from four different perspectives to evaluate strategies in the light of recent performance. 'The scorecard thus enables companies to modify strategies to reflect real-time learning.' Feedback and learning often stimulate executives to learn about the vitality of their strategy, resulting in what we call strategic learning. Strategic learning occurs when feedback is used to test the assumptions on which the strategy was based. Executives then use the findings to make the necessary adjustments. The balanced scorecard therefore 'provides a framework for managing the implementation of strategy while also allowing the strategy itself to evolve in response to changes in the organization's competitive, market and technological environments'.

3.10 REFLECTING ON STRATEGIC DIRECTION

This chapter considered the strategic tools organisations employ to set their strategic direction. The tools considered in this chapter included strategic intent, vision statements, mission statements, value statements, and balanced scorecards. Setting the strategic direction is an important first step in strategic planning and management as it informs and shapes how an organisation defines itself, and where it finds its unique strategic advantage. By creating a 'bigger picture', it also motivates and challenges organisational members to go beyond the status quo in pursuit of a long-term quest.

The process of creating strategic direction is a creative process. Although various guidelines exist, organisations generally apply an individual approach suited to their operational requirements. The strategic leader plays an important role in setting the strategic direction, is responsible for generating excitement about the future of the organisation, and for inviting organisational members to help crystallise that vision. Leaders are expected to walk the talk, and their behaviour and conduct should embody the core values of the organisation. Finally, the executive team should communicate the strategic direction to all stakeholders. Statements should be clear or, alternatively, be decoded or translated into meaningful parts. Organisations can do this by applying the balanced scorecard tool.

CHAPTER 13 Organisational alignment and strategy implementation through organisational architecture

13.4 MEASURING STRATEGY THE BALANCED SCORECARD APPROACH
Kaplan and Norton's now influential work on the balanced scorecard provided the means to measure the effectiveness of an organisation's strategic management efforts. The balanced scorecard allows an organisation to understand how well it has aligned and integrated itself, and how successfully it has implemented and executed its strategy. While Chapter 3 discussed the balanced scorecard in some detail (Section 3.9), it is worthwhile revisiting the concept in this chapter to understand its role in strategic alignment and implementation. The balanced scorecard approach measures strategic success using four dimensions, as indicated in Table 13.9. The balanced scorecard, if implemented properly, provides a useful tool for managers to understand the interconnectedness of their organisations, and how to implement and measure performance accordingly. As such, managers can use it effectively in conjunction with an organisational architecture, such as the one used to describe implementation and alignment in this chapter. From Table 13.9 it is self-evident that the customer and finance perspectives describe capabilities delivered to stakeholders. The internal processes in turn drive these, while organisational knowledge skills and abilities (KSAs), systems, and culture provide the necessary foundations for the various processes. Moreover, measures and indicators used in the balanced scorecard can be effectively translated into operational and individual goals, thus facilitating more focused performance and implementation.

Table 13.9 Dimensions and indicators of the balanced scorecard DIMENSIONS Financial perspective Is the organisation's performance resulting in increased shareholder value? Customer perspective Is the organisation's performance resulting in an increasing share of customer spending? Internal perspective Are the internal processes effectively aligned to drive and deliver improved performance? INDICATORS Increased revenue growth Better cost management More effective asset utilisation Increased customer acquisition Improved customer satisfaction Better retention of customers Increasing customer profitability Operations management processes: producing and delivering goods to customers Customer management processes: ensuring improved customer interactions Innovation processes: design and development of new products, services, and processes Regulatory and social processes: meet and exceed regulatory and social expectations Do employees have the necessary know-how and Learning and growth perspective Does the organisation have the necessary skills, and are they committed? human capital, technology, and culture to Does the information technology architecture drive the strategy? deliver the right data and information at the right time? Does the climate of the organisation support effective execution and are goals and rewards aligned at all levels?