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Despite well-intended transformation strategies, academic and business leaders recognize that 70% failure rates are the norm.1 Moreover, with nearly 70% of digital transformations failing to achieve their ROI targets,2 the coming months could be filled with candid conversations with chief financial officers (CFOs). To help uncover practical playbooks that increase companies’ success rate, Pharma Commerce is pleased to announce a Business Transformation Q&A series in which Michael Wong, Emeritus Board Member of the Harvard Business School Healthcare Alumni Association (HBSHAA), will interview and secure forward-thinking intellectual capital from leading academic and business leaders.
In this, the first of the HBSHAA Business Transformation Q&A series, Michael talks to Harvard Business School’s Robert S. Kaplan, co-inventor of the Balanced Scorecard. For those who have M&A as part of their job description, Kaplan offers three guiding principles of execution excellence.
Michael Wong: As 2021 marked a record year for M&A with more than $5 trillion in global volume and 2022 expected to be another strong period,3 how should smarter C-suites, investment bankers and private equity leaders avoid the value destruction that often occurs, with some estimates ranging from 60% to 90% failure rates?4
Dr. Robert S. Kaplan: Since 1992,5 when Dave Norton and I introduced a management tool called the Balanced Scorecard (BSC), I have stressed how this instrument provides a framework for a holistic view of the company’s strategy. It enables leaders to communicate the strategy to employees. Employees are then motivated and able to take actions that will support a firm’s strategic imperatives. The BSC displays how an organization’s performance can be measured not only with financial key performance indicators, but also with metrics about clients, internal processes, innovation, employees, information technology, and culture. Importantly, the BSC expands a C-suite’s view from backward-looking financial metrics to include forward-looking measures that predict future performance including satisfied and loyal clients, high-quality processes, innovation, as well as motivated and skilled employees. The beauty of the BSC is that it can provide a single source of truth for data across a global enterprise, while also enabling flexibility and customization for general managers of local business units who face their unique market conditions. With the huge global challenges including fighting in Ukraine, the pandemic, and the Great Resignation; C-suites should consider how a BSC might steer their respective organizations’ efforts.
In terms of execution excellence for deploying BSCs, what top three ideas do you have for the readership?
First, C-suites need to have a clear understanding that the BSC is not just a new and more complex reporting system. It will be most effective and have the greatest impact when leaders understand and learn how to use it to communicate and implement their strategies. This is the biggest pain point for many companies. The BSC addresses a key barrier for successful strategy execution. In most organizations, less than 10% of employees can describe their company’s strategy. And if they don’t know what the strategy is, they can’t help to implement it.
Second, a CEO cannot delegate the deployment of their BSCs to the CFO or the chief strategy officer. The entire C-suite needs to be engaged since this is an enterprise-wide initiative. The C-suite should meet regularly, perhaps monthly, to review the data on their BSC to learn what is working, what is not working, and what needs to be done differently to keep the company on a trajectory for successful strategy execution. Annually, the entire C-Suite should meet, perhaps offsite, for a forward-looking planning session to determine any major mid-course corrections to the strategy, based on the data and experiences of the previous 12 months, plus the new opportunities and threats that have shown up.
Finally, C-suites need to provide support so that a BSC can be planned, deployed, and improved over time. The five stages of support include:6
Stage 1: Begin with strategy development, which springs from a company's mission, vision, and value statements, and from an assessment of its strengths and weaknesses, and a competitive strategy analysis.7
Stage 2: Translate the strategy into objectives and initiatives with strategy maps, which organize objectives by themes.
Stage 3: Create an operational plan to accomplish the objectives and initiatives; it includes targeting process improvements and preparing sales, resource, and capacity plans as well as dynamic budgets.
Stage 4: Put plans into action and monitor their effectiveness. Review operational, environmental, and competitive data; assess progress; and identify barriers to execution.
Stage 5: Test the strategy; analyzing cost, profitability, and correlations between strategy and performance. If their underlying assumptions appear faulty; update the strategy, beginning another loop.
The key is to leverage the BSC and other supporting means,8 which can help drive execution excellence to achieve your client’s and C-suite’s goals.
Robert S. Kaplan is Senior Fellow and a Professor, Emeritus at the Harvard Business School (HBS). Dr. Kaplan co-developed both activity-based costing (ABC) and the Balanced Scorecard (BSC), widely recognized as seminal contributions to management theory and practice. Prior to joining the HBS faculty, Dr. Kaplan was Dean of Carnegie-Mellon University’s business school. Professor Kaplan received his B.S and M.S from M.I.T and a Ph.D. from Cornell University.
Michael Wong is an Emeritus Board Member of the Harvard Business School Healthcare Alumni Association.
3. “2022 M&A Outlook: Continued Strength After a Record Year,” Morgan Stanley, January 14, 2022. https://www.morganstanley.com/ideas/mergers-and-acquisitions-outlook-2022-continued-strength-after-record
4. Walker, Karen, “Merge and Destroy?” Forbes, September 29, 2020. https://www.forbes.com/sites/karenwalker/2020/09/29/merge-and-destroy/?sh=30548e3a5932
5. Kaplan, Robert S., “Using the Balanced Scorecard for Successful Health Care M&A Integration,” NEJM Catalyst, May 21, 2020.
6. Kaplan, Robert S.,Norton, David P., “Mastering the Management System,” Harvard Business Review, January 2008.
7. Porter, Michael E., “How Competitive Forces Shape Strategy,” Harvard Business Review, 1979.
8. Kaplan, Robert S., Norton, David P., “Having Trouble with Your Strategy? Then Map It”, Harvard Business Review, September 1, 2000.