Understanding Strategy, BSC, and Implementation

Understanding Business Strategy

Strategy specifies how an organization matches its own capabilities with opportunities in the marketplace to accomplish its objectives. It describes how an organization can create value while differentiating itself from competitors. This includes industry analysis and Porter's Five Forces.

Key Strategic Concepts

Common strategies include Product Differentiation and Cost Leadership.

Strategy Map Explained

A Strategy Map describes how an organization creates value by connecting strategic objectives in explicit cause-and-effect relationships across Financial, Customer, Internal Business, and Learning and Growth perspectives.

Conditions for an Effective Strategy Map

• Strength of ties
• Orphan objectives
• Focal points
• Triggers
• Distinctive objectives

The Balanced Scorecard (BSC)

The Balanced Scorecard (BSC) translates an organization's strategy and mission into a set of performance measures. It provides a framework for implementing strategy, considering not only financial but also non-financial aspects.

Four Perspectives of the BSC

1. Financial: Evaluates the profitability of the strategy and value creation for shareholders.
2. Customer: Identifies target customers and market segments and assesses how effectively the strategy serves them.
3. Internal Business: Focuses on internal operations that create value for customers and achieve financial performance.
4. Learning and Growth: Identifies the people and information capabilities necessary for an organization to learn, improve, and grow. These capabilities help achieve superior internal processes.

Strategy Implementation

Effective Implementation requires:

• Reducing focus on short-run financial performance for managers.
• Strong leadership from top management.
• Communicating the strategy to all employees.
• Linking manager performance evaluations and promotion aspects to strategic objectives.

Qualities of an Effective BSC

1. It tells the firm's strategy through cause-and-effect relationships.
2. It helps communicate the strategy to all members of the organization, translating it into a coherent and linked set of understandable operational targets.
3. It motivates managers to take actions that eventually result in improved financial performance. It highlights less-than-optimal trade-offs that managers may make when failing to consider operational and financial measures together.

Common BSC Pitfalls

• Assuming cause-and-effect relationships are precise.
• Managers seeking improvement across all measures simultaneously.
• Failing to use both objective and subjective measures.
• Not utilizing the Learning and Growth and Internal Business perspectives effectively means the strategy is not fully applied.

Reengineering vs. Kaizen

Reengineering is the fundamental rethinking and radical redesign of business processes to achieve dramatic improvements in critical, contemporary measures of performance. It can be contrasted with a Kaizen approach to change. Reengineering is often sudden and drastic, while Kaizen involves small, incremental, but continual improvement.