EXECUTIVE TEAM LEADERSHIP
A successful Balanced Scorecard program starts with the recognition that it is not a
"metrics" project; it’s a change project. Senior executives must clearly communicate why
change is needed, unfreezing the organization and creating a sense of urgency for change.
The single most important condition to create a successful Strategy-Focused Organization
is the ownership and active involvement of the executive team. If those at the top are not
energetic leaders of the process, change will not take place, strategy will not be
implemented, and the opportunity for breakthrough performance will be missed.
Often the change is brought on by poor organizational performance, well below industry
norms. For example, several of the CEOs of adopting organizations inherited neardisastrous
performance. At Mobil, EVP Bob McCool took over an organization where
expenses had doubled, capital employed had doubled, margins had flattened, and
volumes were heading down. Clearly, change was necessary. Gerry Isom was hired to
turn around the Property and Casualty Division of Cigna at a time when its combined
ratio - the ratio of expense dollars going out to premium revenues coming in - exceeded
130, compared to an industry average of 108. Bill Catucci, the newly hired CEO of
AT&T Canada, noted, "When I arrived, the company was close to bankruptcy. The only
core competence we had was losing money. We were good at that, losing $1 million
[Canadian] every day."
At other times, the senior executives initiate change projects as part of a new strategic
direction for the company. Such organizations adopt new ways of doing business even
though they face no obvious crisis. In 1993, Chemical’s retail bank was still marginally
profitable, but revenue growth in its basic products had slowed. Deposits were leaving
the bank for non-banking intermediaries, such as mutual funds and money market funds,
leaving fewer funds for the banks to invest, which in turn drove down revenues. Core
operating expenses for real estate and personnel were increasing, and new investments
were required for expensive new electronic delivery systems. CEO also
saw electronic banking as an imminent threat to Chemical’s historic reliance on brickand-
mortar branches.
Launching major organizational change, however, need not be done just out of fear.
Effective leaders can also motivate change by establishing stretch targets to break down
organizational complacency and provide inspiration about the future. , city
manager of Charlotte, N. C., drove the development of Balanced Scorecards because she
believed they would help the city’s departments and employees deliver on the vision to
become the number-one city in the U.S. for people to live, work and take their leisure
activities. Dudley Nigg, head of the fledgling Internet banking division of Wells Fargo,
set a goal to become the number-one Internet banking company in the world. The Online
Financial Services division already enjoyed first-mover advantages and seemed to be
doing well. But in the extremely dynamic Internet marketplace, Nigg knew that
continuous improvement was far from sufficient. He motivated the development of the
Balanced Scorecard by setting stretch targets: triple the customer base in less than three
years; become the first Internet bank with 1 million customers; increase the revenue per
customer by more than 50%; and reduce the cost per customer served by more than 35%.
Stretch targets break employees out of their complacency that current performance is
both good and adequate. The targets should require a total organizational commitment to
achieve them.
Building Executive Teams
The dynamics of the executive leadership team frequently determine whether the
Balanced Scorecard can be sustained and the strategy successfully executed. The process
of building an effective scorecard requires the active engagement of senior executives,
not just their support. We refer to this as the "bacon and eggs breakfast" requirement. The
chicken made a contribution that supported the meal, but the pig made a real commitment
to it. Without stretching the metaphor too far, senior executives need to have some real
"skin in the game," investing hours of their time. As senior executives debate and argue
among themselves about the objectives and measures on the scorecard and the cause-andeffect
linkages on the strategy map, they develop an emotional commitment to the
strategy, to the scorecard as a communications device, and to the management processes
that build a Strategy-Focused Organization.
Further, many executive teams consist of functional specialists, each with intense
specialist knowledge. Such functional executives often have surprisingly little awareness
of how other functions work. Organizations must transform their collections of functional
specialists into cross-functional, problem-solving teams.
At Mobil Oil, the finance and engineering disciplines had historically dominated the
executive team. As the senior managers tried to become consumer-driven and sell
products other than petroleum to customers, they had to elevate the role of the marketing
executive. Five years after the introduction of a Balanced Scorecard, every executive
understood the nuances of the market segments, how Mobil differentiated itself, and the
drivers of consumer behavior. The cultural transformation occurred by putting the
customer on the agenda, and by getting an intelligent spokesman to help bring the rest of
the team along.
The creation of the shared vision and strategy at Mobil was an effective way to build an
executive leadership team from the previous collection of individual business unit heads.
A tremendous amount of cross-fertilization took place as each element of the strategy
was translated to the scorecard format. The strategic issues surrounding customer
segments (marketing), yield optimization (manufacturing), cost of capital (finance), and
supply chain management (transportation, pipeline) became the shared issues of the
executive team. Historically, each of these issues had been considered the domain of a
single functional executive.
The creation of an effective leadership team requires the breaking of many traditions.
Management-by-silos is deeply entrenched. Catucci at AT&T Canada disbanded his
monthly management meetings with individual department heads and replaced them with
meetings about the most important business processes, including the management of
strategy. Catucci recalled:
At the Strategic Management meeting, the entire leadership team would get together and
talk about the company in its totality: a holistic approach to the business. Instead of the
chimneys, we would focus on what was happening throughout the company.
A functional or technical culture is frequently at odds with creating a Strategy-Focused
Organization. The U.S. National Reconnaissance Office (NRO) existed for decades as a
super-secret spy organization, with three completely isolated and segregated operating
programs. Senior executives were engineers with strong records of technical
accomplishments. "Soft" managerial tasks, such as strategic planning and
implementation, were considered less interesting than solving new technical problems.
In response to a changed external environment, NRO had been reorganized. People from
previously highly competitive programs now had to cooperate and agree on a unified
approach to space reconnaissance. The new NRO director led a strategy planning
exercise, based on the Balanced Scorecard, to actively engage his senior executive team
in formulating and modifying the organization’s strategy. The Balanced Scorecard
provided a common, structured environment and vocabulary for executives and
employees to learn how to ’do strategy.’ These discussions were the first in which the
senior executive team discussed a comprehensive, shared NRO strategy, rather than a
strategy for their individual unit.
As the details and assumptions in the strategic model became clearer, conflicts and
contradictions arose that required the senior executives to expand the dialogue to include
other members of their organizations. The process gave organizational members the
opportunity to learn more about the strategy model, test their ideas, and explore how to
talk among themselves about strategy. The director had used the Balanced Scorecard
model to create an executive leadership team that could think beyond the mission and
strategy of their individual units. They could now work together to formulate and
implement new organization-wide strategies.
In Charlotte, N. C., city manager used the scorecard to break down functional
barriers and create a culture of teamwork and cross-functional problem solving.
Execution of the city’s five strategic themes required integrated teamwork from each city
department. Syfert introduced a new structure, a cabinet, for each of the five strategic
themes. Membership on the team came from many city departments and also included
representatives from the private sector and the county. The cabinets had their own
scorecards, and held monthly meetings to discuss how to integrate specialist department
activities toward meeting the holistic citywide goals.
Leadership Style
Perhaps the most critical ingredient for scorecard success is the leadership style of the
senior executive. The individuals who led the successful adoption of the Balanced
Scorecard felt that their most important challenge was communication. These individuals
knew that they could not implement the strategy without gaining the hearts and minds of
all their middle managers, technologists, sales force, front-line employees, and backoffice
staff. The leaders did not know all the steps required to implement the strategy.
They had a good vision about what success would look like and the outcomes they were
trying to achieve. But they depended on their employees to find innovative ways to
accomplish the mission.
At first we were surprised to learn that two of the most successful early adopters,
at Mobil and at Chemical’s retail bank, were ex-Marine officers.
The stereotype of military officers is one who succeeds through command and control.
But the best military officers, particularly in the Marines, recognize that when the battle
is taking place, the generals are far from the front lines. Especially in the uncertain
environments where Marine battles occur, whatever has been planned is almost surely not
going to occur. Front-line officers may have been killed, equipment may have been
dropped off at the wrong location or destroyed before it could be deployed, and the
enemy may have appeared in unexpected places. At that point, the mission depends on
front-line troops reorganizing and adapting to the local situation. In the heat of battle, the
intangible assets the troops can draw upon are, first, a clear knowledge of the mission and
objectives they are expected to accomplish, and, second, an ability to improvise and work
together to achieve the mission and objectives.
Senior Marine officers communicate, educate, and train their troops with a goal "that
every private can become a general." Every member of the corps must be able and
prepared to lead. McKinsey & Company and the Conference Board performed a study of
organizations that were the most successful in engaging the emotional energy of their
front-line workers. They looked at many organizations in the private sector, but finally
concluded that the Marine Corps "outperformed all other organizations when it came to
engaging the hearts and minds of the front line." Given this culture, it is not at all
surprising that Marine officers, when leading organizations in the private sector, are
constantly looking for ways to communicate mission and objectives, and attempting to
inspire their employees to find innovative ways to help the organization succeed.
Bill Catucci of AT&T Canada, in our initial interview with him, described his
management style of communication, team building, and empowerment. It sounded very
much like what we had heard from . When we asked him whether he
had been a military officer, he was initially surprised by our question, but then replied
that he had been an Army officer, and concurred that his business leadership style had
been influenced by his military officer’s background.
The Balanced Scorecard strategic management system works best when used to
communicate vision and strategy, not to control the actions of subordinates. This use is
paradoxical to those who think that measurement is a control tool, not a communication
tool. Excellent leaders recognize that the biggest challenge they face in implementing
change and new strategies is getting alignment throughout the organization.
Success in using the Balanced Scorecard to become a Strategy-Focused Organization is
most likely when the leader of the organizational unit has a management style that
emphasizes vision, communication, participation, and employee initiative and innovation.
Avoid organizational units where the leader likes to be completely in control. Avoid
leaders who use management control systems to ensure that all sub-units and employees
are following directions and adhering to plans determined at the top of the organization.
Find the right leader, one who can create the climate for change, the vision for what the
change can accomplish, and the governance process that promotes communication,
interactive discussions, and learning about the strategy.
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