Center Piece of Enterprise Performance Management

Madras Management Association on 4^th of August had organized for a lecture on Strategy Execution – The Center Piece of Enterprise Performance Management. I was invited to preside over the session, introduce the speaker Mr. Tor Inge Vasshus; Founder & CEO of Corporater a Norway based company and deliver opening and closing remarks. With 12 years of industry experience, Tor Inge has implemented over 50 balanced score card projects mostly in Scandinavia.

In my opening remarks, I introduced the speaker to the audience and presented a bird’ eye view of enterprise performance management where I mentioned that making a meal requires combination of raw materials (the ingredients), tangible capital and assets (cooking implements, an oven, and a stove) and intangible human capital (the Chef ). But a great meal requires a recipe to take advantage of all these tangible and intangible assets. The recipe is the critical soft asset which can transform the raw ingredients, physical assets and intangible assets each with little stand alone value into a great meal with considerable value.

The recipe corresponds to a company strategy that combines internal resources and capabilities to create a unique value propositions for targeted customers and market segments. To do this Strategy should be made as every one’s job and all the employees should understand and be motivated to execute it.

In an organization design, what we try to achieve is synergy. For organizational performance to become more than the sum of its parts, individual strategies must be linked and integrated. For most of the organizations management process is built around the budget and operating plan. Monthly management reviews are devoted to review of performance versus plan, an analysis of variances of past performances and an action plan to deal with such variances. Sometimes exclusive reliance on financial indicators promotes short term behavior that sacrifices long term value creation for short term performance and 85% of the management teams spend less than one hour per month discussing strategy.

Much like a navigator guiding a vessel on a long term journey, always sensing the shifting winds and currents and adapting the course. The executives of successful companies use ideas and knowledge generated by their organization to constantly fine tune their strategies. Instead of being an annual event, strategy then becomes a continual process.

Why do companies have difficulty in implementing well formulated strategies? One problem is that strategies by which organizations create values are changing but the tools for measuring the strategies have not kept pace. In Industrial economy, companies created value with their tangible assets, by transforming raw materials into finished products. During the industrial age from 1850 to about 1975 companies succeeded by how well they could capture the benefits from economies of scale and scope. During this period financial control systems were developed in companies like General Motors, DuPont, and General Electric.

However in the information era, companies can no longer gain sustainable competitive advantage by merely managing financial assets and liabilities, measures like ROCE and so on were used to monitor health of the organizations. One of the largest diversified group of companies in USA reported in late 90s …”we had run the company tightly for the past twenty years and had been successful. But it was becoming less clear where future growth would come from and where the company should look for breakthroughs into new areas. We had become a high return on investment company but had less potential for further growth .It was also not at all clear from our financial reports what progress we were making in implementing long term initiatives .

A 1982 Brooking Institute study showed that tangible book values represented 62 % of industrial organization’s market values. Ten years later the ratio dropped to 38 % and recent studies indicate that by the end of twentieth century value of tangible assets accounted for only 10 % to 15% of companies’ market values. Clearly the opportunities for creating value are shifting from managing tangible assets to managing knowledge based strategies that deploy an organization’s intangible assets.

In today’s knowledge based economy, intangible assets become major source of competitive advantage. Through alignment and coherence of the organization’s limited resources, well articulated strategy can produce non linear performance breakthrough. For example, take the case of a hand held laser pointer that produces blinding light by emitting all the photons and light waves in phase and coherent .Laser operates non linearly leveraging its limited power source and producing an incredibly bright and focused beam of light (as opposed to warm and diffused light produce in the room by so many kilo watts of power sources). This illustrates how focus can enable breakthrough performance.

Sharing similar views Mr. Tor Inge’s while speaking on strategy emphasized that employees should have a right perspective, if they understand the purpose and objective of what they do the outcome will be much better and the value appreciated. He also mentioned that companies should have formal strategy in place, not to be filed away in a cupboard. But each and every employee should be able to understand, appreciate and put it in practice. Quoting that companies spend considerable time, resources for developing a strategy but 9 out of 10 companies fail in implementing the Strategy which is developed, this is because there is no formal process for implementing strategy. To address this framework for executing strategy must be developed. The strategy and the business processes must be developed in a way that people can quickly adapt to the changing business scenarios. While stating this he also mentioned that in order to stay competitive the productivity of Indian companies should increase so as to match their western counterparts.

Explaining the benefits of implementing balanced score card and developments in the field of Enterprise performance management using business intelligence, he quoted few companies known for operational excellence, product leadership, product edge & customer leadership and added that these companies had well defined strategies which were implemented. He also took questions from the audience and clarified their doubts on strategy, balanced score card implementation and enterprise performance management.

While delivering the closing remarks, to a question on how strategy can be applied in today’s ever changing scenario, I clarified by stating the today’s business scenario can be compared to a flying bird and you cannot shoot a flying bird with a fixed gun position, therefore strategy cannot be a fixed one and it has to be made adaptable to suit the changing business scenarios. Quoting on a study which mentions the ability of executing the strategy as more important than the quality of the strategy, I concluded by saying that only 10% of the effectively formulated strategy is successfully implemented, which meant failure rate in execution ranged from 70-90%.