Strategy and Balanced Scorecard in Practice
Most organizations they are restless ... markets and competitors change, competitiveness is increasing, in some cases the results get worse without being very clear if it is due to structural or conjunctural problems ... Faced with this situation, organizations are in a moment of seeking solutions . The strategy and use of Integral Scorecard can help us right now.
Thus, in our consulting work we find sectors or companies that traditionally come from having large margins due to the innovation of product / business or the lack of competitors and that currently tell us: “We have less and less margin. Competitors are more aggressive and we have to sacrifice margin often ”.
In this situation it is an important time to ask yourself some questions:
- Are we losing the advantages over our competitors and are we currently engaged in a war of Prices?
- Does the market see us as one more, without any differentiation from our competitors?
- Is the impact of globalization being important in our sector?
- Are we losing operational efficiency?
- If we are in a productive sector, are we competitive with current costs?
- Is the business model in crisis?
Actually what we find in practice is that managers of organizations usually find it difficult to identify their strengths and weaknesses because it is often difficult to analyze the situation when immersed in it.
It is difficult to conclude that a company that has achieved great results for 30 years has to change radically. It is very difficult for managers and owners to reach that conclusion… But on many occasions we are faced with the difficult dilemma of “change or die”.
Beyond great theories about the definition of strategy, I think that the first thing we have to be clear about is what strategy is and what it is for. The strategy is to make a deep Insights both our organization and the environment to define an action plan that leads us to improve our position over competitors in the medium-long term. The strategy is to choose a path.
On many occasions, we find organizations that define “continuity” strategies, that is, assume that customers and competitors do not change and therefore that the strategy will be in the same line as that of the last 30 years. There is great resistance to change and this solution is usually not a good one: what worked 30 years ago does not usually work today.
It is very important to emphasize that the strategy should not be to "project" figures over x years, but we must bear in mind that a strategy that does not lead us to have competitive advantages is a useless strategy and it will take us directly to the competition for Prices decreasing the profit margin day after day and ends up being a cancer for the company.
The typical strategy definition process is represented below:
For practical purposes, in the strategic management process described above we found four potential weaknesses:
- We usually find big problems in initial diagnoses. On many occasions, managers are too "optimistic" so there is a tendency towards continuity plans and "radical" action plans are not necessary.
- That the strategy is defined at the senior management level and is not communicated to the entire organization.
- That the strategy cannot be executed because there is no clearly a relationship between the strategic, tactical and operational level.
- That the strategy is "static" and that it is not reviewed with the agility that a changing environment like the current one requires.
Each of these situations has a different solution line. In the first case, a culture should be promoted in the organization open to constructive criticism and in which all people can contribute to the company's strategy and that their visions are valued.
To solve the second, third and fourth problems we have a tool called Balanced Scorecard.
The Balanced Scorecard
The Balanced Scorecard was created to definitively relate the strategy and its execution using indicators and objectives based on four perspectives. The benefits of the implementation of the Balanced Scorecard can be integrated into four concepts:
- Relate the strategy with its execution defining objectives in the short, medium and long term
- Have a control tool that allows the taking of strategic in an agile way.
- Communicate the strategy at all levels of the organization, thus aligning people with the strategy.
- Have a clear vision of the cause-effect relationships of the strategy.
To achieve these benefits, the Balanced Scorecard uses a model based on indicators and objectives that revolves around four perspectives: financial, customers, processes, interns and learning and growth.
Thus, a table of indicators is defined with objectives in each of the perspectives that serve to execute, communicate and control the strategy.
In addition, the strategic map is also used, which is a diagram of the cause-effect relationships of the strategy through the four perspectives and that serves to capture in a graphic way the deployment of the strategy to have a clearer vision for making decisions. decisions.
In conclusion, at a time like this is a good time for a thorough review of the organization's strategy with a critical eye and to use a balanced scorecard to get it to work.