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Did you know that the ESM can automatically evaluate the performance of your measures?
The attendees of our webinar on the Target Scheduler do!
Learn how to schedule threshold bands by period, so that when data is manually entered or sourced into the ESM, the performance color for that measure is automatically displayed.
Replay the session at https://breeze.palladiumes.com/p86173230/ or review the Target Scheduler reference guide in the FAQs and Help section of your account.
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In today's demand-driven and increasingly competitive market; the need for effective strategic management is imperative. This need has spurred the conceptualization of several management theories. Naturally, as delivery on promise differed, some have fared better than others.
One framework in particular, that of the Balanced Scorecard, has gained sustainable ground since its introductions by Drs. Kaplan and Norton in 1992. In fact, the BSc has even been regarded as the single most important management tool in Western organization, so much so, that over 50 percent of Fortune 500 companies utilize the methodology.
The BSC methodology enables the translation of strategy into action by helping everyone in an organization to understand and work towards a shared vision. This, however, necessitates the establishment of a support infrastructure to integrate, access, and communicate relevant data to the right people.
Increasingly, companies are turning to IT solutions to facilitate information transparency and the decision making process. Automated software applications, such as the Executive Strategy Manager, can assist in BSC implementation in ways such as providing a visual representation of strategy, integrating and communicating information throughout all levels of the organization, and making strategy execution an ongoing process by providing a new framework for reporting and feedback.
Many companies, however, are still supporting their BSC implementation with unsophisticated solutions like simple spreadsheets or slideshows. Consequently, they may be afflicted by problems resultant of lacking scalability; labor intensity; collaboration limitations; and analytical impediments.
Selecting the wrong solution can result in a significant loss of time, energy and money, and more importantly, it can also undermine the entire BSC development effort. This brings rise to questions such as "How can my company extract the full benefits of the BSC model?" and "Can a technologically advanced solution, such as the ESM make a difference in the success rate of my BSC implementation and work?"
These questions, and more, will be addressed in future installments; based on the findings referenced in the August 4th blog post titled "Independent Study Confirms: ESM Will Help You Succeed!"
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I recently came across a case study, published just last month, titled "Information System Effects on Organizations Balanced Scorecard Work". This study was focused exclusively on the ESM application – something our team believes to be the first of its kind!
The study concluded that the ESM does, in fact, positively impact an organization's rate of successful BSC implementation and utilization. The findings also allude to a correlation between the time of ESM introduction and the avoidance of common pitfalls.
Read at http://biblioteket.ehl.lu.se/olle/papers/0002989.pdf or stay tuned for more!
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To follow up on Kent's recent post, I'd like to remove my "Strategic Hat" for a few moments, and dive into the more uncharted territory (for me) of operational management. Historically, most organizations managed their strategic and business requirements as distinct silos. However, today's management processes need to maintain a firm footing in both areas.
Throughout the blog, we've done our best to share thoughts on best practices in managing strategy: How to use the ESM to maximum advantage, best practices in Balanced Scorecard Reporting, insights on initiative management and guidelines for employee performance measurement. What we haven't done however, is focus on operational reporting. Now it's becoming more and more clear that the conversation is not complete if you're only speaking about the strategic sphere or operational sphere, so I want to begin a dialogue around operational business intelligence (BI) and reporting.
Historically, organizations used business intelligence primarily to support strategic decision making. This is where the ESM has its sweet spot, allowing executives and managers make a smaller number of, broad-based strategic decisions, such as whether to make a corporate acquisition, introduce a new product or change product pricing, or expand the sales force. Tactical/operational BI enables managers and staff to make more frequent decisions, such as how to create a new marketing campaign, or how to analyze the impact of a new business initiative. As you get even more operational, report data helps a wide range of users, from all levels in the organization make thousands of operational decisions each day, such as how to deal with a delay, satisfy an upset customer, replace a defective part, deal with a shortage. As opposed to strategic decisions, operational decisions need to be made rapidly so that a problem doesn't escalate or an opportunity isn't lost.
This means that operational reports (and the BI systems that support them) must deliver real time information to users the instant that an event occurs. In other words, operational BI should provides the right information to the right people at the right time so they can make the right decisions to positively affect desired outcomes.
What we're trying to streamline now, is the optimal way to bridge strategy and operations. When reviewing operational info, how much does the strategic context matter. On the flip side, when reviewing strategic information, how deep into operational data should you dive, and how should the drilldown be structured. For those of our out there who are already tying together these discrete, yet interrelated processes, please let us know what conclusions you've come to.
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After nearly 10 years in the strategy space certifying many of the big name business intelligence software vendors out there for their Balanced Scorecard module (meaning that their business performance management software meets the minimum standards for building and managing scorecards), I've formulated a concrete opinion on how most differ from the Executive Strategy Manager. I've seen cases where both types of applications are needed, neither is needed, and just one will meet the needs of the organization.
What the ESM is and is not
The Executive Strategy Manager is truly a strategy management platform. It should be thought of as a data presentation layer by which leadership and employees alike can review strategic performance and make informed decisions on how to proceed. It provides powerful alignment around objectives, measures and initiatives within a cascaded scorecard environment, breaks up the strategy map into digestible "theme" slices for simplified reporting meetings, and personal views into the strategic elements most important to individuals and teams. The ESM is not an application for sophisticated forecasting and trend scenarios, detailed analytics, or for managing hundreds or thousands of operational measures. Remember, it is a strategic management platform and tries to present the strategic level of information in an organization for informative decision making. It is not trying to manage all the data consolidations that some organizations demand.
The strengths and weaknesses of the BPM component within CPM applications
Most BPM solutions have a solid capability to handle thousands of measures that may or may not be organized in any logical fashion within an organization. They can consolidate them according to the rules established by the user, run analysis reports, trends, and forecasts. While they can display strategy maps and scorecards, they do not have the data presentation layer that is found to be so powerful by ESM clients worldwide. This presentation layer is precisely what creates the right dialogue within strategy review meetings and keeps the discussion at the strategic level.
So what solution is right for your organization?
My recommendation on what is the right solution for you is based off the sophistication of your organization's data needs, reporting culture, and the leadership team level buy in for managing their strategy with strategy maps and Balanced Scorecards. Larger data intensive organizations with a "bought in" leadership team require both the ESM strategy presentation layer AND a BPM/CPM solution to truly manage both their strategic and operational data (Yes the two integrate with one another nicely.). Less data intensive organizations often find they are successful with simply the ESM for managing their strategy as few measures below the strategic level are actively managed. Less data intensive organizations are also typically, but not always, smaller organizations and quickly find themselves priced out of the BPM/CPM space. And finally, I find myself turning away organizations who are looking for a measures database tool. I encourage them to seek out a good BPM/CPM solution set for their metrics management.
Need more guidance?
Please reach out to me at ksmack@thepalladiumgroup.com and I'll be happy to provide you with a frank and honest opinion on if the ESM is the right application for your organization.
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I just got off the phone with an associate in Atlanta and things are really hurting down there. While I'm all for freedom of speech and freedom to pray for water (as recommended by some officials in the region), I wonder if the key water suppliers in that area had a more defined strategic approach in the form of a scorecard, would this crisis have been less extreme?
A lake that I used to row on from time to time, Lake Lanier is essentially a desert wasteland today. It is apparent that local towns are allowing for development simply because of the increase tax base and not because it is sustainable. I don't expect local towns to be able to control their thirst for water but I do expect the water suppliers to manage the allocation of water to the regions they server. Much like oil has been a cheap commodity for the US, Water was even cheaper. So what should suppliers do now? I encourage a strategy map that shows the common logic between their different business perspectives and a rationalization on their targets to ensure there is a formula behind their own supply and demand, even during times of drought.
We've had several water suppliers adopt the Balanced Scorecard framework, with one of the more popular ones being a BSC Hall of Fame member, Western Water. They are one of 15 regional water utilities in Victoria, Australia. Per their Hall of Fame Press Release: "After adopting the BSC in 2000 the company achieved an 80% increase in profitability-despite the worst drought in 100 years-and significantly improved customer satisfaction. It also grew its percentage of recycled water from 34% in 1999 to 83% in 2004, leading its peer group in this key water management metric. The Balanced Scorecard has helped Western Water take a quantum leap forward in corporate governance, ensuring that management reporting and strategy are totally integrated."
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Organizations must link their strategy to operations and without this crucial connection, true change will never occur. Organizations today are bombarded with more data in a quarter than they can analyze in a decade, and as you know, data is absolutely useless unless it is converted into some type of meaning or context.
They key to linking operations to strategy or vice versa, is having a continual process of linking operational data to strategic knowledge. As you see in the diagram below, aggregating your data is the first step to this process. According to a 2006 study by Unisys and DM Review Magazine, 75% of organizations have 4 or more data management applications and 50% of organizations over $3 billion in revenue have 11 applications or more! Could you imagine being the CEO of a company that has over 11 data management applications and trying to make an informed strategic decision? Without an intermediary application to process this information, it would be near impossible.
Once the data sources are established and organized, organizations must process and interpret it (essentially funneling it up to executive leadership). Next comes the knowledge phase and this is where the executive team meets the analysts. Once the executives have established their balanced scorecard objectives, they will be requesting certain information from analysts in order to track progress. If the organization is using the ESM to manage their balanced scorecard program, I would argue that information becomes knowledge once it is successfully linked to the organizations strategy. This allows the executive team to use that knowledge by linking it to their strategy and thus being able to make those strategic decisions that drives the business.
Once you have the correct processes to filter this data into knowledge, your strategy essentially gets linked with the operations. This is because your are continuously receiving real time data from your operations and filtering this into a chewable amount of information for executives to digest.
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OK, so I came up with a suitable trendline for my measure in the last post, but the proof of concept also asked for a 12 month forecast of this measure. The challenge with a forecast is also that it depends on several factors.
One factor is seasonality. Some retail companies have tremendous sales in the fourth quarter leading up to the holidays. If you ignore seasonality, you could forecast a huge Q1, but in fact have a big drop off in Q1 because most of the company sales actually occur in Q4 just before Christmas.
Some organizations are cyclical, so rather than looking at the annual season, it is important to look at the long term business conditions. You could have an organization selling heavy equipment that thrives in a great economy. If the economy weakens substantially, you would need to include this information in your forecast. Other organizations are affected by their industry overall, rather than the entire economy.
If you are not new to forecasting, this post may seem simplistic because you already have a model that helps you conduct this type of analysis, but if your organization has not conducted forecasting before, it is important to determine which of these factors or combination of factors has the highest correlation to your business. Once you determine that, then you will begin to have a good model to begin predicting the future.
Of course, once you factor in the forecast based off of earlier this year, last year, your industry, and the economy, then you need to look at how you could improve your forecast. The description above describes a forecast of business as usual. You want to use the leading indicators or objectives in the internal and learning and growth perspective to help drive change and improve your forecast of performance. More on that later.
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With the city of Boston still reeling from the heady wine of success and the fans and players bask in the glow of a magnificent post season victory some people still have New York State of mind.
More specifically : what is the deal with A Rod and his fantastically scene stealing agent? The bitter aftertaste must linger mightily on the back tongue of such a lauded player. To have received so many awards and yet still come up trophy less has to be a real slap in the face. One would have given A Rod much more credit for showing up in Coors stadium to graciously accept his award and wish his fellow MLB players a good game. Instead under some obnoxious guise was surprisingly absent to only rear his ugly head in the form of a glory hog grabbing press release. This release was sent out during a time when the spotlight should have been on the Boston Red Sox and their excellent ball playing or even the Rockies for hanging in and playing to their best to the end. So if The New York Yankees had a balanced scorecard would they have been able to effectively staunch the flow of blood that is hemorrhaging from the Evil Empire as of late? Could it have anticipated A Rods dissatisfaction? Would it have been able to manage Joe Torre so that he didn't meet the sharp end of a double edged sword? Would they, during a time when Epstein and Franconia so carefully worked to craft the young fledgling team to victory, have been able to cultivate their own succession planning and building blocks for a promising future? If they had the ability to check their balances and balance their checks, might the Yankees be where they are now? Would the mass exodus of free agents be happening with the uncertainly of so many key players possibly deserting a town so burden with baseball blues? And is it just a matter of the right deals and the right players at the right time or it is more than that? Perhaps we will never know and that is why the New York Yankees need a balanced score card.
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Curt Schilling came to the Red Sox after the 2003 World Series. The Red Sox of course were not in the World Series in 2003, but they hoped that Schilling could bring the title to Boston. Curt brought an extra twist to the contract negotiation.
In order to be sure that he was completely aligned with the owner's goals, he negotiated a $2 million bonus if the Red Sox won the World Series. The management agreed, and the next year, Schilling got his bonus, and management broke the curse of the Bambino. Both parties must have been elated.
Schilling that year pitched with a broken body (remember the bloody sock). He did everything he could to help the team. Wouldn't it be great if you could get your employees so aligned to your company's strategy that they gave such an effort?
The worst thing you can imagine is when companies do have employees that give it their all, but their efforts are not aligned to the company strategy. Thus it is all for not. Organizations have an obligation to implement the BSC and to align compensation to the strategy. With these components aligned (strategy and compensation), breakthrough results can be achieved. Using the ESM and the Personal BSC, it can be done quickly and easily.
Now the Sox have a second world title under their belt, and Schilling is 11-2 in the post season. He is also up for contract negotiations this off season. I guess we will find out whether the Sox are willing to put their money where the strategy is.
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Holding effective strategy management meetings is critical to strategy execution. I've seen a lot of organizations implement the BSC in suboptimal ways and ultimately struggle with successfully deploying the concept. Most of the time, the challenge is with using a BSC once it has been developed.
My colleague, Adam Wayshak, and I have developed a meeting simulation that we will showcase at the North American Summit in San Francisco on November 6. This session will use video and discussion groups to analyze the strategy review meeting.
We will discuss what works and doesn't work in review meetings as well as how to analyze data and leverage technology in this process. If you are coming to the Summit, please attend the session. If you are not coming to the summit, please look for a version of this simulation on our website in the near future.
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"I came into work on Monday and had a very interesting day. I met with the controller who said that my business unit only had made 8 transactions all year. According to my spreadsheet, our unit has made 74 transactions year to date. Then I found out, indirectly of course, that our new CEO had cancelled a sales meeting that I had been planning for the last 2 months. This meeting had several people coming from overseas along with the key domestic sales staff, and we were planning on charting our growth for 2008. This is crazy, I thought, I must be living in Absurdistan."
Does this sound like your company? ESM could help. Actually, just using the BSC would help a lot. A company needs a guiding framework to understand what it's strategy is. The BSC will help define what you should do as well as what you should not do. With a scorecard, it would allow a new business leader to understand what is important and to make decisions that align with the strategic direction of the company. As for matching up the data, it is more challenging because you need to get repeatable processes in place. Once you have some control structure, then you can just source data directly into the Executive Strategy Manager and have one version of the truth.
So maybe there is hope of getting out of Absurdistan afterall.
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We mentally prepared ourselves for a photo finish. We ran through all the possible race scenarios. We were all but sure the race would come down to the last few strokes. We were wrong. At the 800 meter mark, I looked across the course and counted 4 boats. I counted again and again to make sure my mind was not playing tricks on me. We had open water on China, Greece, Slovenia, and Belgium and we were a seat up on the Ukrainians. We had only rowed in our line-up for a month and we executed our strategy. We were going to the Olympics!
What's interesting to note in my short recount of our 2004 Athens Olympic qualification race is that we were prepared to react to our environment and augment our strategy to succeed. Likewise, the scorecard is only as good as its execution. You could pay hundreds of thousands of dollars for scorecards from the board room right down to the front line employee, but if the employee doesn't understand the strategy and how he or she contributes to the strategy, you won't be able to react in time and thereby fail to execute. Let me provide some tips and tricks in the Executive Strategy Manager that organizations can apply to ensure your workforce is ready to execute.
Again, the design phase is important, but ultimately, it's all about the execution. To set your organization up for a fast start, select your all stars and put them on the team. Your strategy is worth the best.
Second, get everyone into the Executive Strategy Manager right from day one. The application is built for easy navigation by all types of users.
Third, when the scorecard is fairly set, share ownership of objectives, measures, initiatives, and milestones with as many employees as possible. This reduces the ongoing reporting effort required by any one person, drives communication, analysis, and reflection on the strategy, and ultimately, drives execution.
Forth, drive all reporting meetings with the ESM. The ESM has a simple interface that allows you to navigate between your scorecard and get at the story behind the strategy. Whether it's a corporate executive team or a divisional support unit group, the ESM creates the right structure to execute your strategy.
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While there are a lot of early wins that the Balanced Scorecard provides (i.e., eliminating or consolidating redundant initiatives, getting everyone reading from the same playbook, actually articulating the strategy, etc.), the real power of the Balanced Scorecard comes over time.
That's because it takes time to execute strategy, and it takes time to mobilize and change the direction of a major organization. We see the "excitement curve" about the Balanced Scorecard start to wane in many organizations around the 12-15 month mark. At this point, many of the early wins have already been celebrated, but the long-term benefits have not yet been realized.
Now, this isn't to say that the Balanced Scorecard slows down the change process. In fact, the opposite is true: The Balanced Scorecard is accelerating and guiding the change. But when you're right in the middle of things, seeing some improvements in Learning and Growth and Internal Process measures, but more limited improvements on the top line, it's easy to get frustrated.
Fortunately, however, this low point on the curve only lasts for a few months, as the Balanced Scorecard accelerates the organization's ability to grow and change. Many of our Hall of Fame companies have seen breakthrough strategic results (last to first) in as little as 24 months.
So, if you're getting discouraged by the slow pace of change, take a step back and think about what it would be like without the Balanced Scorecard there as your roadmap. And keep your head up, as those who keep with the program can and will get great results.
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Today I sat in on a number of speeches and presentations given at the Global Public Sector Summit here in Washington DC. Public Sector organizations from all over the world come to this conference in order to learn best practices and see how other public sector organizations have utilized the balanced scorecard to manage very complex and many times very inefficient agencies.
I sat in on a number of speeches today, but among others, Fulton County, a client of ours, gave a very interesting presentation on how the balanced scorecard has enabled them to achieve break through results with in their top level, student achievement perspective. I'm also very happy to say that the Executive Strategy Manager was mentioned as being the best visual representation of the balanced scorecard. They are currently using our software to link all of their strategic initiatives to their overall objectives within their strategy map, and in doing so they have been able to communicate their strategy very effectively to their board of directors.
Their next plan will be to lock their 2008 balanced scorecard within the Executive Strategy Manager and post the application, set as a browser level, on their website for the entire community to see. This will allow for anyone and everyone to see the performance of their strategic measurements and how those are mapped to their strategic objectives and initiatives.
If you'd like to learn more about Fulton County, please go to our case study section on our website: http://www.executivestrategymanager.com/customers_success_fulton.cfm
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In my work supporting the strategic reporting process, the most frequent questions that arise involve the setting of status indictors for objectives, particularly those with multiple measures. While at face value these are seemingly innocent questions, what I have observed is that underlying each is the desire to "Game the System" or display positive results when in reality quantitative data shows otherwise. Below are a few of questions that have been common among organizations implementing performance management systems.
- We are below target for the first time in four months and this is just an odd blip. Do we really have to indicate a status of "Caution" or can we just ignore this one time instance?
- If we have three measures supporting an objective and two are green (on-track) and one is red (well below target), aren't we really green since the red measure is one we didn't really like anyway?
- Our results indicate we our in the caution zone, but I don't think the target accurately reflects the business environment, so can't I override the system generated status to green?
While organizations have answered these questions with a wide range of responses, I caution any deviance from the actual facts, particularly given the reality that eventually the truth catches up with you and it is better to act swiftly when small issues arise, then be left to put out large fires when issues explode. More importantly, these types of triggers bring attention to exactly the type of issues and events that performance management frameworks seek to identify. Simply put, to ignore the reality of business results defeats the purpose of implementing a data driven, fact-based management framework.
As much as we would like to think otherwise, there is no guarantee that this month/quarter is merely a one time deviation from the norm and not the beginning of a new trend, nor should data be ignored simply because the results are no positive. Rather, these findings highlight potential issues within strategic business drivers and should be part of the executive discussion as they require leadership consensus and intervention. While I do not advocate an approach that only examines short-comings and continually brow-beats leadership for lagging performance, effective management and decision making requires the cold hard facts - good, bad or indifferent. While you may be able to escape reality for a while, eventually it will catch up with and unfortunately when it does, it is usually not kind.
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As many of you might be aware, on the 160th day of this baseball season, the Boston Red Sox clinched the American League East division for the first time since 1995. While celebrating this victory, I came across an interesting interview with Theo Epstein, General Manager of the Red Sox. Epstein is known for being one of the big "Moneyball-style" analytics guys in Baseball, and he uses statistical data as a large part of how he builds the team.
In the interview, Epstein was asked how often, if at all, he factors in a "gut feel" while making a decision, or if all of his decisions were strictly analytics based. Epstein responded, "We try to do as much analysis as possible. The best decision-making processes usually involve the most information, the most preparation. But every decision also involves reliance on instincts as well. We try to make sure we have things covered from an objective standpoint even as we acknowledge that most decisions require a subjective balancing of close competing interests."
I think this perspective applies just as aptly to business management as it does to the sports world. Those executives who rely entirely on gut feel, might run off a string of successes, but eventually their gut will be wrong. Conversely, those who rely solely on the numbers, often are missing a lot of the objective criteria that makes an organization successful. It's really only by combining the two methods of "gut feel" (or intuition) and data analysis that a leader is prepared to effectively make sound business decisions.
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