Why Do Only 10% of Companies Execute Their Strategy?
www.creditunions.com, April 18, 2006
Creating a strategy and then executing it is sometimes an easier-said-than-done proposition. To increase the odds of a successful execution in today’s multi-faceted business climate, many organizations create “strategy centered scorecards” to measure the journey toward their established vision and objectives.
Strategy scorecards allow business leaders to easily focus resources on executing their set strategies. A critical step in using a strategy scorecard is to communicate with employees and external stakeholders the focused outcomes and performance drivers by which they will achieve their vision and strategic objectives. Without this scorecard, organizations run the risk of poor strategy execution.
According to Paul Niven, author of Balanced Scorecard, Step-by-Step, some of the reasons for poor execution of organizational strategy include the following:
- Only 5% of the workforce understands the strategy
- Only 25% of managers have incentives linked to strategy
- 85% of executive teams spend less than one hour per month discussing strategy
- 60% of organizations don’t link budgets to strategy
How can you help your credit union overcome Niven’s statistics?
Consider developing a strategy scorecard.
Let’s begin with some tips for creating and communicating your credit union’s strategy scorecard. Using your strategy, develop a list of financial and NON-financial measurements that you believe will advance your strategy and have a positive impact on the vision of your credit union (develop this list with your team and be diligent to narrow the list to the most important measures). When developing a clear strategy scorecard system, it is important to incorporate measurements that are historical (lagging measurement indicators), as well as those that are forward-looking (leading measurement indicators).
Now, what is a “lagging measurement indicator?” Lagging measurements, or indicators, are outcome measurements that help you gauge your strategy’s progress by examining the final end result or outcomes of your collective efforts. Use of the "lagging" term reflects the delay or gap between your actions and a change in the final end result. Lagging indicators have a DIRECT bearing on an organization or department's bottom line. There is a business interest in and financial benefit from improvement in these areas.
Next, what is a “leading management indicator?” Leading measurement indicators are process measurements that help you gauge incremental progress you are making toward key outcome (lagging) measures. Since leading indicators measure the results from your processes, there is less of a delay between your actions and a change in the system/process. They are the performance drivers -- the key factors that enable the overall end result (outcome) you want to achieve. Leading indicators have an INDIRECT bearing on an organization or department's bottom line. Where there is a business interest in improvement in these areas, there is not often an immediate financial benefit to the organization or department.
To continue with the process, take your list of Financial and Non-Financial measurement indicators and have your team organize them into 4-to-6 strategy scorecard categories. Please remember that these strategy scorecard categories should align with your strategy. Some examples of categories include:
- Product/Service Quality
Once you have developed your strategy scorecard, ask the following questions of each measurement:
- Is this a critically important measure for your organization or department?
- Are the results measurable?
- Can you collect meaningful information on this metric every month?
- If the answer to any of these questions is “no” – seriously consider dropping the measure, or immediately find a way to measure it.
- Your list should have no more than a total of 15 measures.
One last tip to complete your strategy scorecard -- help your team solidify agreement on each metric. Answer the following questions:
- What is the description of the critical measure indicator?
- What does it measure and why it is important?
- How will the measurement be calculated?
- What is the goal measurement (actual metric)?
- Who owns the measure (name the individual/s)?
List other documents or reports that can be used to support an understanding of the metrics. In developing a meaningful link, you may consider things like:
- Data models
- Year-to-year comparisons
- Relevant data trends
- Year-to-date trends
- Peer group comparisons, etc.
- You also may want to attach supporting documents, such as questionnaires, schematics, floor plans, etc.
Use this link to share your strategy scorecard as well as communicate and share your strategy scorecard to your internal and external stakeholders. In addition, make certain that any changes to critical measures are explained thoroughly to all employees.
Your employees, managers and peers will want to know how well the organization or department is performing toward your strategy. Employees should know and understand how the work they do impacts the organization or department's strategy scorecard. Your strategy scorecard will help everyone in the organization make better decisions – top down, bottom up, and laterally – about how they spend the resources, time and money they control.