Leading Change for Strategy Execution -...

Leading Change for Strategy Execution

Dr. Robert S. KaplanBaker Foundation Professor, Harvard Business School

Executing strategy: Senior executives’ #1 issue

The Balanced Scorecard: The Central Component in a New Strategy Execution Management System

Private Sector Organizations

"If we succeed, how will we look to our shareholders?”

"To achieve our vision, how must we look to

our customers?”

“How do we have a social impact with our

citizens/constituents?”

Mission (Customer) Perspective

Financial Perspective

Customer Perspective

Process

“How do we attract resources and authorization for our

mission?”

Support Perspective

Non Profit and Public Sector Organizations

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our customers?”

"To satisfy our customers and shareholders, at which processes must we excel?”

“How do we align our intangible assets to improve critical processes?”

“To have a social impact and to attract resources and support, at which processes must we excel?”

“How do we align our intangible assets to improve

critical processes?”

“How should we manage and allocate our resources for maximum social impact?”

Process Perspective

Learning & Growth

Process

Learning & Growth

Financial

Palladium Balanced Scorecard Hall of Fame for Execu ting Strategy® : By Industry 2000-2010

The Management System for Strategy Execution Links Vision and Strategy to Operational Excellence

performance measures

1

36

• Mission, Values, Vision

• Strategic Analysis

• Strategy Formulation

DEVELOP THE STRATEGY

• Strategy Map / Themes

• Measures / Targets

• Initiative Portfolios

• Funding / Stratex

TRANSLATE THE STRATEGY

ALIGN THE ORGANIZATION

• Business Units

• Support Units

• Employees

• Board of Directors

• Profitability Analysis

• Strategy Correlations

• Emerging Strategies

TEST & ADAPT

Strategic Plan

• Strategy Map

• Balanced Scorecard

• Stratex

2

results


Process

Initiative

EXECUTION

results

45

PLAN OPERATIONS

• Key process improvement

• Sales planning

• Resource capacity plan

• Budgeting

• Strategy Reviews

• Operating Reviews

MONITOR & LEARNOperating Plan

• Sales Forecast

• Resource Requirements

• Dashboards

• Budgets

Leadership: The Necessary and Perhaps Sufficient Co ndition for Successful Strategy Execution

LEADERS …

1. Establish DirectionDevelop a vision of the future along with strategies for producing the changes needed to achieve that vision.

2. Align PeopleCommunicate the direction to all employees, create coalitions that understand the vision and are committed to achieving it.

3. Motivate and InspireEncourage people to move in the right direction by appealing to basic human needs, values and emotions.

The Eight Step Process for Leading Successful Chang e:John Kotter, Leading Change (Harvard Business Press).

1. Establish a Sense of Urgency

2. Form a Powerful Guiding Coalition

3. Create the Vision for Change and a Strategy for Achieving It

4. Communicate the Vision and Strategy

5. Empower Others to Act on the Vision and Strategy

6. Produce Short-Term Wins

7. Sustain the Effort: Produce Still More Change

8. Institutionalize the New Culture

The Eight Step Process for Leading Successful Chang e:









John Kotter on Complacency versus Leading Change

• Complacency exists when people think what they are

doing is right and they don't need to change. The most

common cause of complacency is past success.

• In a world that is changing faster and faster all the time,

complacency is cancer. Not bad. Not a problem. Cancer .

• Well-known and often still highly respected companies have the disease, and

their futures aren’t pretty. Many people, including capable CEOs, don't recognize

this in their organizations—and even more don't see it in themselves. Success

and scale usually result in an inward focus, where people don't see the threats or

opportunities that lie just outside. They of course deny this, as do people in all

organizations. Just ask a crowd of people how many of them are complacent,

and see how many hands go up.

Leadership Must Overcome Complacency (We’re doing O K) and Communicate the Urgency for Change: “Why” and “Why Now”

Financial Challenges• Weak competitive position (profitability rank in industry)

• High costs

• Mediocre to poor quality

• Stagnant or declining revenues

Competitive ChallengesCompetitive Challenges• Traditional Competitors

• New Competitors

Technology Challenges• Lack of innovation

• Threat from emerging technologies

Regulatory and Environmental Challenges

Leaders, even when sailing in smooth waters, must a nticipate the dangers that lie ahead

Executing Strategy is Leading Change

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“Change before you have to”

Jack Welch










A Successful Journey Requires both Visionary Leader ship and a Great Crew

2. Form the Guiding Coalition: Achieve Consensus and Commitment Among the Leadership Team

Senior leaders must concur on both the vision and the plan to carry out the strategy successfully

Strategy execution requires two pillars of support from leadership:

− Building consensus

Con

sens

us

Com

mitm

ent

− Building consensus

− Securing commitment Successful Strategy Implementation

Brian Baker, Mobil US Marketing & Refining Executive Vice President

“You could take our scorecard and give it to a competitor and it wouldn’t work. You had to have sweated through the hours and hours of work and effort that went behind the card to get the benefits from the measures. That’s what brings it to life. It’s got to become part of the company’s belief system, almost a religion – the benefits don’t come just from having a piece of don’t come just from having a piece of paper with a scorecard on it.”




3. Create the Vision for Change and a Strategy for A chieving It






3. Create the Vision for Change and a Strategy for A chieving It

The vision is a concise statement that defines an ambitious me asurable target (a Big Hairy Audacious Goal) and a date by which it mu st be achieved.

Having a stretch target and a date, not too far int o the future, creates the sense of urgency: We must start now on the trajectory to bre akthrough performance.

• Cigna Property and Casualty Insurance Company [when it was the least profitable P&C insurer] : “to be in the top quarter of profitability within 5 years”

• Large Apparel Retailer (with $8 billion in sales): “to achieve $20 billion in sales within 5 years”

• President John F. Kennedy (1962) for the US Space P rogram“to land a man on the moon and return him safely to earth by the end of the decade.”

Stage 1: Develop the Strategy


1

36

• Mission, Values,

Vision










• Business Units

• Support Units

• Employees





TEST & ADAPT

Strategic Plan

• Strategy Map


• Stratex

2

results


Process

Initiative

EXECUTION

results

45

PLAN OPERATIONS


• Sales planning


• Budgeting




• Sales Forecast


• Dashboards

• Budgets

Case Study: Volkswagen do Brasil’s new strategy

Vision: Restore profitability and achieve #1 market share in Brazil by 2009

Advantage: by having our highly-motivated employees work collaboratively with our key suppliers, to produce

• innovatively designed,• high performance• competitively-priced, and• reliable vehicles • reliable vehicles

that are sold and serviced through the best dealer network in Brazil

Scope: to middle and upper-income consumers.

from… …to

Operational, Tactical Management focus Strategic

Fiat, Ford, General Motors CompetitionTraditional 3 + French, Japanese, Korean, and Chinese automakers

Losing money Financial performanceAchieving profitability, eventually an 18% ROCE

Declining: From # 1 to # 3 Market shareExpanding : Regaining #1 position in Brazil

Stale brand, reliable, well-engineered carsCompany brand and

imageExciting, innovatively-designed and high -performance vehicles

VW do Brasil’s Change AgendaHow must we change for our strategy to work?

image high -performance vehicles

Declining, below targeted performance Customer SatisfactionHighest among all auto manufacturers in Brazil

Slow, bureaucratic, hierarchicalManagement decision-

makingEmpowered employees making strategically-aligned local decisions

Not engaged Dealers and SuppliersPartners with VWB to achieve highest ratings in Brazil

Better , faster, cheaper ProcessesBetter and faster; high quality and low cost

Demoralized, alienated, adversarial EmployeesHighly motivated, collaborative, participative




Stage 2 of the Management System: Plan the Strateg y


1

36






PLAN THE STRATEGY


• Business Units

• Support Units

• Employees





TEST & ADAPT

Strategic Plan

• Strategy Map


• Stratex

2

results


Process

Initiative

EXECUTION

results

45

PLAN OPERATIONS


• Sales planning


• Budgeting




• Dashboards

• Sales Forecast


• Budgets

VWB’s Strategy Map: Acao para Vencer (Act to Win)

Satisfy the customer’s

expectations

Improve company image

Create and manage a robust production volume strategy to adapt to industry

Achieve sustainable and positive

financial results

Achieve Market Share growth

Develop dealer organization into

more service

Guarantee customer oriented

innovation

Increase direct processes efficiency

VP Sales & MarketingMetrics:

2.1 Market Share2.2 Price Index 2.3 Contribution Margin2.4 Vertriebsleistung

VP Finance & Corporate StrategyMetrics:

1.1 EBITDA1.2 Return on Investment1.3 Operating Profit as % of Revenue1.4 Facility & Tool Investments1.5 Net Cash Flow

Director Quality Assurance Metrics:

3.1 Things Gone Wrong3.2 Repair per 1000 3.3 Costumer Satisfaction Index3.4 Audit Note

Director Corp. Affairs & PressMetrics:

4.1 Image Quality Index4.2 New Car Buyer4.3 Employees Image Index

VP Product DevelopmentMetrics:

VP OperationsMetric:

VP OperationsMetrics: 10.1 Accomplish Prod. Planning

Volkswagen do Brasil Balanced Scorecard: Metrics an d Accountability

Develop attractive and innovative product

portfolio

adapt to industry volatility

Achieve high performance culture

Become sectorial reference for authorities

and representative entities

more service direction

Guarantee reliable Supplier →

Manufacturer processes

Achieve launch management

efficiency

Increase indirect processes efficiency

innovation management efficiency

Develop sustainability as management principle

New

VP HR & OrganizationMetrics:

13.1 Gallup Index 13.2 Cooperation Barometer 13.3 Training hours/employee .

13.4 Fitness Index13.5 Executive Competence Index13.6 Cell Leaders Screening

Director GovernmentalAffairsMetrics:

14.1 Radar report 14.2 Agreements Success Index14.3 Representative Level in external entities

VP HR & OrganizationMetric:

15.1 Ethos Indicator

Director Product PlanningMetrics:

12.1 Brazilian Market Survey 12.2 Launching Strategy12.3 Product Portfolio Renew

VP Sales & MktMetrics: 5.1 High Performance Program .

5.2 Quality Index Service 5.3 Customer Satisfaction with Last Visit 5.4 Repeated Repair

6.1 Implementation of unique selling point

VP Product DevelopmentMetrics:

7.1 Releases at right moment7.2 Change of Parts at critical phases

Metric:

8.1 Hours per Vehicle

VP SupplyMetrics: 11.1 Cripple Index 11.2 Supply ProgramManagement 11.3 Quality RatesSupplier

VP HR & OrganizationMetrics: 9.1 Efficiency Indicator9.2 # of Kaizen Projects

Planning .

10.2 Achieve InstalledCapacity

Dashboard for Dr. Senn, Vice President Human Resour ces , the “objective owner” for “Achieve a High Performance C ulture.”

General Status Info

Achieve a High Performance Culture

Champion:Dr. J.-F. Senn

Projects Status

W = 30%

13.1 Gallup Index

13.2 CooperationBarometerW = 10% 2008 2009 2010

100%

Metrics YTDTarget FC (8+4)

13.3 Training hours/employee 100% 98%

2007 2008 2009 2010

100%

Establish a VW School of Excellence

100%

100%

PID for Cell Leaders

Fitness Contest

Summer Scholl

W = 15%

W = 15%

Page 13

W = 10%employee

W = 20%

13.4 Fitness Index 100%

2008 2009 2010

100%

13.5 Executive CompetenceIndex

13.6 Cell LeadersScreening

100%2008 2009 2010

100%

2009 2010

2007 2008 2009 2010

Establish a VW School of Excellence

Competence Appraisal Improvements

VOLKSWAGEN DO BRASILFC(8+4)

100%

100%

Each strategic objective has at least one strategic initiative selected to drive short-term improvements

General Status

Develop the structure, process and support for all training and development

programs for the Cell Leaders including more than 40 courses divided into classroom

training (29 courses) and online training (12 courses).

Scope Project Metric

Participants Index

ProjectEstablish a Volkswagen School of Excellence

Objective Project Metric

% Training Programs for Cell Leaders included

in the courses structure - Pre Requirement

(2009 - Based on Lider Executor II - 95%)

Unify and standardize training and development programs for

the Cell Leaders providing a continuous professional

improvement

92

10

2009 2010

Achieve High Performance Culture

80

2009 2010

New

Coordinator

R. Ramos

Planned Date Real Date Status

CW 07/10 CW 05/10

CW 12/10 CW 12/10

CW 14/10 CW 14/10

CW 17/10 CW 17/10

CW 22/10 CW 17/10

CW 26/10 CW 25/10

CW 28 to 52/10 on going

Sign-Off (R$000) Real (R$000) Status

Updated on:

by:

*CW = Calendar Week

R$V. Berdague

Information

CW 30/10 Investiments are related to: Content development;

Infrastructure and implementation.R$

Investiments on

Validate Reward process to Instructors

L. Moreira

A. Ferreira

Local HR Managers

Involved areas

Operations

Basic Module - Content Aplication

Presentation VP HR / VP Operations

Start Communication process: all Employees

Pre Requirement Module - Content Conclusion

Pre Requirement Module - Start Group (Leader Cell)

Courses content presentation at Werkleiterrunde

Dr. Senn CW* 07/10 CW 52/10

Project Team Main Milestones

Sponsor Start Date Final Due Date

2009 2010










Stage 3 of the Management System: Align the Organi zation


36


• Stretch Targets






• Initiatives




• Business Units

• Support Units

• Employees





TEST & ADAPT

Strategic Plan

• Strategy Map


• Stratex

21

results


Process

Initiative

EXECUTION

results

4

5PLAN OPERATIONS


• Sales planning


• Budgeting




• Sales Forecast


• Dashboards

• Budgets

Align employees to strategy. Communicate “seven tim es seven different ways”

Mr. Thomas Schmall, CEO of Volkswagen do Brasil used the strategy map when he addressed the meeting of 400 senior managers. In this way, he demonstrates his personal commitment to using the Balanced Scorecard as his strategy management system.

The VWB BSC project team introduces a robot, “Giga, ” as the brand for the new strategy execution system.

GIGA congratulates a visitor to the VWB plant about his understanding of the strategy.

Comic strips in the company newspaper feature GIGA discussing the VWB strategy with employees

Employees use a Learning Map to analyze the VWB str ategy and competitive environment during 90 minute training s essions

Facilitators train 20,000 employees on the strategy ’s “Learning Map”

VW do Brasil employees study the strategy map between assembling cars.

The monitor plays a 70 second tutorial about some a spect of the VW do Brasil strategy.










Stage 4 of the Management System: Plan Operations


1

36











• Business Units• Support Units• Employees




TEST & ADAPT

Strategic Plan

• Strategy Map


• Stratex

2

results


Process

Initiative

EXECUTION

results

45

PLAN OPERATIONS

• Key process improvements

• Dashboards• Budgeting




• Sales Forecast


• Dashboards

• Budgets

Empower Others to Act on the Vision and StrategyAlign all organizational units and employees to the strategy.

Headquarters Scorecard

Scorecard Cascade

Shared Services

Business and

Scorecard Cascade

Shared Services

Departments

Teams & Individuals

Business and Regional Units

Departments

Teams & Individuals

Strategy MapCause-and-Effect Model

of Each Key Process

Web-based Dashboard of

metrics used to manage a

Key Process

THEME linked to

PROCESSPROCESS linked to

METRICS

METRICS improve

PROCESS

PROCESS supports

THEME

Dashboards articulate the critical link between str ategy management and operations management.

Identify operational processes key to executing strategy and manage those processes with frequent feedback on dashboard KPIs

VW do Brasil posts a dashboard of operational indic ators on the wall of its assembly plant

A display of Top 500 dealer performance indicators is posted in the hall of VWB’s senior executive office suite.










VWB recognizes employees for outstanding local proj ects aligned to Balanced Scorecard objectives

More than 3,000 local projects enrolled for driving operational improvements.










Stage 5 of the Management System: Monitor and Lear n


1

36











• Business Units

• Support Units

• Employees




TEST & ADAPT

Strategic Plan

• Strategy Map


• Stratex

2

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results


Process

Initiative

EXECUTION

results

45

PLAN OPERATIONS


• Sales planning


• Budgeting




• Sales Forecast


• Dashboards

• Budgets

Stages 6 of the Management System: Test, Learn, an d Adapt


1

36











• Business Units

• Support Units

• Employees

•Strategy Correlations•Emerging Strategies

TEST & ADAPT

Strategic Plan

• Strategy Map


• Stratex

2

results


Process

Initiative

EXECUTION

results

45

PLAN OPERATIONS


• Sales planning


• Budgeting

• Strategy Reviews• Operating Reviews


• Sales Forecast


• Dashboards

• Budgets

7. Sustain the Effort: Produce Still More ChangeContinually Test and Adapt the Strategy

Strategy Learning Loop

FinancialPerspective

CustomerPerspective

InternalPerspective

Learning Perspective

The Strategy

incorporate learning

update the strategy

• Are the data consistent with our strategic hypotheses?

• Has the environment changed in a fundamental way?

• Have new strategic options emerged?

Test and Adapt the Strategy

48

Performance

Initiatives & Programsoutput

result

Strategy Review Loop

corrections

input

Financial

Cust

Internal

L&G

Strategic Objectives

� Financially Strong

� Delight the Consumer

� Win-Win Relationship

� Safe & Reliable

� Competitive Supplier

� Motivated & Prepared

Strategic Measures

� Return of Capital Employed

� Mystery Shopper Rating

� Dealer/Pioneer Gross Profit Split

� Manufacturing Reliability Index

� Days Away from Work Rate

� Laid Down Cost vs. Best Competitive

Ratable Supply

� Strategic Competency Availability

Balanced Scorecardoptions emerged?

Strategy Review Questions • Why did we miss the target?

• What correcting actions should we consider?

• Are initiatives on schedule?

• Do you need more resources?

• Would an multi-functional task force help?










8. Institutionalize the New Culture: A New Strategy Management Office Coordinates the Six Stage Management System


1

3

6

• Mission, Values,

Vision


• Strategy

Formulation

DEVELOP THE

STRATEGY

• Strategy Map /

Themes




TRANSLATE THE

STRATEGY

ALIGN THE

ORGANIZATION

• Business Units

• Support Units

• Employees

• Profitability

Analysis

• Strategy

Correlations

• Emerging

Strategies

TEST & ADAPT

Strategic Plan

• Strategy Map

• Balanced

Scorecard

• Stratex

2

Plan the Strategy:

Develop, Translate and Align

(Stages 1-3)

results


Process

Initiative

EXECUTION

results

4

5

PLAN OPERATIONS

• Key process

improvement

• Sales planning


• Budgeting



MONITOR & LEARN

Operating Plan

• Sales Forecast

• Resource

Requirements

• Dashboards

• Budgets

Execute the Strategy:Link to Operations,

Monitor, Learn and Test

(Stages 4-6)

SMO

VW do Brasil established a new Strategy Management Office

Strategy Formulation

O. Garcia

Strategy/BSC Committee

T. Schmall / J.-F. Senn / C. Isensee

BSC Management

C. Davies

E. BarrosG. Merendi

CorporateAffairs and

Press Relations

H. Araujo

HR &Organization

Finance Operations Sales &Marketing

Supply Product Development

QualityAssurance

KaizenGovernmentAffaris

Legal Affaris

Presidency

Environment

ProductPlanning

InformationTechnology

Autovision

BSC Team

Volkswagen do Brasil Performance Improvements

Measure

2006

(pre-BSC) 2008 2010

Revenue (billions) € 5.2 € 7.0 € 9.2

Profit before taxes (index) 100 443 425

Return-on-Investment 100 900 462

Domestic Sales units 413,000 585,000 697,000

Production (units) 594,000 717,000 825,000

Market share (autos) #2 #1 #2

Employee engagement index 100 200 230

Executive engagement 100 600 680

Leadership and Strategy Execution

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