It is no mystery that to be competitive and successful, organizations must understand how their own perception of what is quality in its products and services - in other words: its value discipline - coincides with the quality expectations of customers for those same products and services - the customer's value proposition. This will allow the organization to develop an appropriate strategy that reorganizes all organizational aspects as well as the operational one to
execute the strategy effectively. However, somewhere between defining the perfect strategy and executing it, many organizations lose, or at least stray from, their strategy, failing to achieve their vision.
Many managers relax believing that the definition of a good strategy is sufficient to ensure its effective implementation, and that without a high-quality strategy the organization is doomed to failure. However, according to an article published in the magazine Fortune Magazinei in 1998, 70% of the failures of the managerial personnel is due not to a poor strategy, but to an inadequate and scarce execution of the strategy, caused by causes such as indecision and breach of commitments.
This problem is accentuated in the Information Technology (IT) companies, where the communication barriers caused by the use of very different languages, cause a reduction in the potential of IT to add value to the organization and identify new opportunities for deal.
Traditionally, managers have used financial indicators to support decision-making. strategicWhile IT departments tend to focus on technical metrics. It is enough to join a financial manager with the Director of IT in the same office to witness a conversation, at least funny. This will most likely be a frustrating dialogue, hearing the CFO speak in terms of Cash Flow and ROCE as the IT Director tries to justify a budget increase with the need to improve system availability and detection efficiency of errors for new systems to be developed.
In view of this situation, there is a need for a process that allows investments throughout the organization to be oriented towards achieving business objectives, and which therefore creates a common language in the organization and provides a common framework for evaluation using the same criteria throughout the organization.
Looking for balance
Considering that the most important goal of most organizations is to generate positive financial results, most of the highest level business objectives can be translated into financial performance goals that reach those objectives.
Based on these financial results, organizations establish objectives for the client area such as: client acquisition, retention, satisfaction and loyalty, aspects necessary to achieve financial objectives. Organizations generally find it difficult to relate financial goals to customer objectives. However, establishing relationships between people, processes,, the technology and the business culture that will allow achieving the financial and customer objectives, is a task that few companies master.
The Kaplan and Norton Balanced Scorecard provides the organization with a strategic framework to identify and drive the organization's drivers toward their goals, defining relationships between performance goals for four different perspectives on organization.
Kaplan and Norton describe the Balanced Scorecard as an action framework to translate an organization's vision into its strategy, paying attention to the requirements of shareholders, customers and internal requirements, which together describe the organization's strategy, and how this strategy can be achieved
The Balanced Scorecard is based on the premise that organizations cannot continue to depend only on a set of financial indicators. These represent a “delayed snapshot” of the operation of the company, they offer us information on what has already happened, so it is very difficult to avoid a possible problem once it has been detected. This limitation is especially evident in today's competitive markets, where the speed of change requires great organizational agility in order to quickly take strategic successful and thus be able to react to changes. Consequently, “ex-post indicators” - as financial indicators are generally - need to be balanced with other measures that offer warnings and thus be able to forecast future results. These measures will be the "a priori indicators", which provide the organization with early information on whether it will be able to meet its proposed business objectives, and whether it will be able to maintain those achievements in the future.
Similarly, the criteria for evaluating the performance of IT organizations are changing. The contribution of IT managers to the business is no longer valued simply by efficiency and cost reduction, but new criteria such as the ability to understand and support the business strategy, or the ability to quickly adapt to market changes and new technologies. In the same way, investment in IT and strategic IT-related are not just based on lowering IT costs, but IT possibilities are beginning to be considered to meet both current and future business needs. For many IT managers, their biggest challenge is determining how to balance the need to maintain an IT infrastructure that already exists and is needed in the company, with the need to be an innovative and therefore attractive business area.
Consequently, IT managers are looking for new systems to manage the operation of IT activity that provide a framework for collecting and using quantitative measures as the basis for management of IT activity. IT managers require these types of systems management since they allow them to demonstrate and communicate the possibilities of IT for the business. One of the most important factors of strategic change today is Technological Innovation. In particular, the application of innovative information technologies is changing the basis of market competition. Today the advantage of using IT not only lies in increasing the efficiency of processes and tasks, but also allows the creation of new products and services based on technology, new distribution channels between the company and customers, suppliers or any other interest group. Information Technology can be related to almost all aspects of a modern organization, its business network and its environment in general.
In recent years we have been applying the Balanced Scorecard principles to IT organizations at the European Software Institute Foundation in an attempt to deal with all the problems discussed so far. One of the most notable differences in our adaptation of this methodology has been to include a fifth perspective, the People Perspective, to take into account the special requirements of IT companies in general and software development in particular.
In a world where nothing lasts forever - today's innovative products are replaced by new and improved versions of tomorrow - the variable that is always critical in the company is the people who work in it. By dedicating efforts to increase the satisfaction and competence of the company's employees, important benefits can be reaped in the long term by increasing the commitment of the company's people, and therefore their productivity.
For many years the manufacturing industry has attached great importance to management of the supply chain as a key factor to increase profits. There are many variables that must be considered as part of a management effective supply chain, but it is undoubtedly important to manage the quality of raw materials received from suppliers, as well as the internal processes that will convert these raw materials into finished products as critical elements for the success of the company. Part of this practice should be carried over into the software industry and integrated into software process improvement practices. Generally we strive to continually improve the software management and development processes, but nevertheless we tend to forget the importance of the raw material that those processes must transform to produce better, faster and cheaper software.
The software industry is probably one of the most knowledge intensive industries. Therefore, how does an organization dedicated to software development manage the quality of raw materials when it is in the knowledge of the people who work in the company? Various studies, experience and even common sense tell us that there is a direct relationship between the quality of products and services, the processes that produce them and the people who carry out those processes. Despite this, why is common sense so rare when managing people during a software process improvement program, or any other improvement initiative in general?
Tom De Marco and Tim Lister, two gurus in the software industry, state in their book “Peopleware” iv, that “the end result of any effort depends more on who does the work, than on how it is done.
make". Any non-trivial process carried out without the necessary skills and motivation can have the opposite effect for which it was designed - to increase the performance of the organization. Paying attention to the personal and professional needs of the people who work in the company, the source of the raw material for the development of software products and services, the organization has a factor through which to improve its performance.
The Balanced IT Scorecard (BITS) provides a useful framework for identifying how and how the organization should improve in order to increase its long-term profitability. However, it is the BITS definition and implementation process itself that presents the most important challenges facing Information Technology organizations, or any organization in which the knowledge of the people who work in it is a key element.
Not only is the book value
According to a report by Ernst & Young LLPv, when analyzing the value of an organization, 35% of the valuation is based on non-financial data. The report goes on to identify the non-financial factors that have the greatest influence on the valuation of a company:
Currently, the evaluations made by the shareholders of the companies, in addition to being based on financial reasons, consider the ability of the organization to execute its strategy as a key factor. The strategies alone are nothing more than a series of hypotheses that imply a cause-effect relationship between the actions or strategic taken and their results (hopefully the expected results).
Understanding the cause-effect relationships between the five BITS perspectives becomes an essential factor not only to refine the quality of the strategy but also the ability to communicate and execute.
of this, concluding with the scope of the vision of the company.
Defining the union between vision and strategy is a crucial point that many companies overlook. This fact is not surprising since in many cases the vision of a company is defined in such a poor and vague way that for the people who work in it it is difficult, if not impossible, to understand, and therefore to identify with it. . A survey by Renaissance / CFO magazine highlights the failure of many companies to understandably communicate the vision to their employees.
As we can see in the previous graph, while a high percentage of participants in the survey from the US and the UK recognize the existence of a vision in the organization, as we move along the hierarchical line, the number of people who understand the vision is it is below 10% in the last levels of the hierarchy. If we consider that executing the strategy of the
organization is everyone's job, this is not very encouraging. How can you execute a strategy when it is related to a vision that employees do not understand?
Kotter suggests that effective vision has six essential characteristicsvi. A vision must be:
Imaginable - a photo of what the future will be like.
Desirable - that is attractive to the long-term interests of all stakeholders in the organization.
Feasible - ambitious but with realistic and achievable goals.
Focused - clear enough to guide the taking of strategic.
Flexible - general enough to allow individual initiatives and alternative responses in changing situations.
Communicable - easy to communicate and can be explained in five minutes.
Our experience shows us that once the relationship between the vision and the strategic objectives has been established, defining the strategy to achieve them is a process of great value to the organization. To translate the vision into what we call the 'strategic intention', we ask the organization to complete the following phrases for each of the five BITS perspectives in simple language:
An example for the customer perspective is:
By doing this for each of the BITS perspectives, all the stakeholders of the organization (shareholders, customers, suppliers, staff of the organization, etc.) have a clear manifesto on how the future of the organization looks, how The achievement of this future will be measured and what performance goals are established for the long term.
A disciplined proposal
We have previously offered an example of 'strategic intent', for which the Client Perspective has been purposely chosen. In a recent article by Kaplan and Nortonvii, they state that: “Although a clear definition of the customer value proposition is the most important step in developing a strategy, approximately three-quarters of executive teams do not take action. agreement on this basic definition. "
It is not difficult to assume that the company's ability to achieve the customer value proposition will impact the ability to attract and maintain a profitable customer base. However, the definition of quality of products and services from the point of view of a supplier management team - the organization's value discipline - is not always aligned with the expectations of quality and value that a customer perceives from those same products and services.
There are different methods to detect these gaps and one of the most used in the 90s was the SERVQUAL method.
The SERVQUAL model, represented in the graph above, highlights the weak points (lags, or gaps, 1-4) of product and service providers that result in the discrepancy, from the point
from the clients' point of view, on the quality of these products and services (gap 5).
Gap 1 - Discrepancy between customer expectations (the value proposition) and the perception of these by managers.
Gap 2 - Discrepancy between the perception of the management in relation to the expectations of the clients and the quality specifications of the products and services (the discipline of value).
Gap 3 - Discrepancy between the quality specifications of products services and the products-services delivered.
Gap 4 - Discrepancy between delivered products-services and promised products-services.
Gap 5 - Discrepancy between customer expectations and their perceptions of the product-service received.
From the client's point of view, gap 5 is the one that is important and will influence the clients' decision to buy new products-services from the supplier in the future. Therefore, gap 1 must be solved so that the company has a clear idea of customer expectations, and thus defines an appropriate value discipline to achieve the customer's value proposition.
Treacy & Wiersma describe three value disciplinesix for choosing the market segment and being successful in reaching the value proposition of customers in those segments.
Operational excellence - "The companies that adopt this discipline are distinguished by offering a combination of quality, price and ease of purchase in their products, hardly comparable by anyone."
Companies that compete successfully under this discipline differentiate themselves by offering their customers the Best Total Cost.
Product leadership - "Companies characterized by offering innovative products: with the most modern technology or the latest functionalities".
Companies that successfully compete under this discipline are known for offering their customers the Best Product.
Customer relationship - “These companies build very close ties with their clients; They know the people they sell to, as well as the products-services they need. ” Companies that successfully compete under this discipline differentiate themselves by offering the Best Total Solution.
As can be seen in the graph above, an information technology organization that wants to compete under the discipline of product leadership, for customer management processes and operational processes, must meet the minimum requirements to be able to compete in the chosen segment. . However, to be successful you must excel in innovation processes (shaded box). This situation will force the organization to monitor indicators related to: research and development activity, life cycles of new products and continuous process improvement.
Once the gaps between the customer's value proposition and the company's value discipline are understood and eliminated, we will determine where to focus efforts on the internal BITS People, Processes and Infrastructure & Innovation perspectives, and we will have identified what areas is important to measure for their management.
From strategy to action - saying what we do and doing what we say
As in any movie once the script is written, a good director will employ a set of tools and techniques that will guide you through the filming process to increase the likelihood of producing a box office success. In the same way, once the company has clearly defined its strategy and understands the cause-effect relationships between the organization's success factors (the script), it is time to move on to action.
By defining the “a priori” and “a posteriori” indicators for the five BITS perspectives, setting performance goals for each of these indicators, and communicating all of this work to the organization, the management team will be able to demonstrate that an approach is being taken. disciplined to manage the activity of the organization, and that the successful execution of the strategy is not left to chance
Werewolves do not exist, nor neither do bullet-based solutions silver
Despite the fact that many companies attribute a series of benefits to the Balanced (IT) Scorecard, these could not have been achieved if the organization had not contributed to the creation process in implementing this methodology, a strong leadership team. The Scorecard requires good leadership, it is not a substitute for it, and therefore managers should not fall into a false sense of tranquility and believe that this methodology will solve all the problems of the company. During the last decade Beer & Eisenstatx have used their Organizational Profiling Technique to understand the causes of problems encountered in the processes of strategic change in an organization. In most of the cases they have studied, they have found six barriers that prevent the successful implementation of the organization's strategy.
As seen in the graphic below, Beer & Eisenstat's six “Silent Killers” are troubling on their own. But if we also observe the relationships that exist between them, this vicious circle becomes a monumental obstacle.
The Balanced IT Scorecard as a method to develop and implement an organization's strategy can be effective in dealing with these six barriers mentioned, but without a good leadership team, the obstacles cannot be overcome.
Although developing a quality strategy is somewhat of an art, its description and communication should not be left to chance. Using a methodology to describe the strategy, an organization will have a mechanism to better understand and explain the cause-effect relationships between strategic actions and business results. Few will disagree with the following statement: "The quickest way to fail is to constantly do the wrong things in an efficient and effective way." The framework and process for developing a Balanced IT Scorecard is a very powerful tool to express the vision and strategy of the organization in tangible terms, to obtain the support of all levels of the company and thus increase the ability to execute. a quality strategy. The Balanced (IT) Scorecard provides the company with a clear map that tells us where we are and where we want to go, guiding us on the path we have chosen and helping us avoid what Paul Nitze described as “the most dangerous human error : forget what you want to achieve. "
- Charan R. & Colvin, G., Why CEO's Fail, Fortune Magazine, June 21, 1998
- Kaplan, RS & Norton, DP, Translating Strategy Into Action - The Balanced Scorecard, Harvard Business School Press, 1996
- Reo, D., Focusing on the raw material of software development - It's a people issue !, conference material 'European Software Control and Metrics', ESCOM-SCOPE 2000, March 2000
- DeMarco, T. & Lister, T., Peopleware: Productive Projects and Teams, Dorset House, 1987.
- Ernst & Young LLP, “Measures that Matter”, 1998
- Kotter, JP, Leading Change, Harvard Business School Press, 1996
- Kaplan, RS & Norton, DP, Having Trouble with Your Strategy? Then Map It, Harvard Business Review, September-October 2000
- Zeithaml, VA, Parasuraman A. & Berry LL, Delivering Quality Service - Balancing Customer Perceptions and Expectations, The Free Press, 1990
- Treacy, M. & Wiersema, FD, The Discipline of Market Leaders, Addison Wesley, 1995
- Beer, M. & Eisentsat, RA, The Silent Killers of Strategy Implementation and Learning, Sloan Management Review, Summer 2000