STRATEGIC PLANNING

Strategic Planning in an Organization

Strategic Planning in an Organization

Introduction

Strategy is vital to an organization's success. However, if an organization is unable to effectively implement, communicate and cascade the strategy throughout the organization, companies may have a low rate of success and could experience failure. Harvard Business Review (2005) defined strategy as a well thought out plan to give an organization a competitive advantage through differentiation. Strategy aligns with the mission and values of an organization, where the company desires to be in the future, and how the group plans to get there.

Kaplan and Norton (1996) sponsored a one year multi-company study in 1990 at the Nolan Norton Institute, the research arm of KPMG. The study was introduced to determine if relying on primarily financial measures was an adequate approach to measure organizational performance was becoming obsolete. David Norton was the CEO of the Norton Nolan Institute and Robert Kaplan was an academic consultant. They worked together with several different companies sharing insights and experiences and this led to what is now called the Balanced Scorecard (BSC).

Discussion

Kaplan and Norton explained the BSC uses four perspectives: (a) financial, (b) customer, (c) internal, and (d) innovation and learning. The name BSC refers to the balance between financial and non-financial measures, balancing lagging and leading measures and internal and external perspectives (Kaplan & Norton 1993). In 1992 and 1993 several additional companies had an opportunity to utilize the BSC to translate and manage strategy. Kaplan and Norton (1996) described the experiences of these organizations helped refine the strategic linkages of the scorecard. The linkages show the cause and effect relationship which shows how investing resources in training and development of employees, technology and innovation have a causal effect on future financial performance. These companies also demonstrated how as little as 20-25 measures over the four perspectives could easily communicate and cascade strategy.

The scorecard is paired with a strategy map to be used as a visual to communicate and correlate the intangible assets to tangible assets. It is a simple map showing how the foundation of people and technology affect process, customer satisfaction and eventually financial measures. It is a communication tool to show employees how their jobs fit in to the organization's strategy (Kaplan & Norton 1993).

Balanced Scorecard

Kaplan and Norton (2001) stated that the actual strategy may be less important than a properly executed strategy. Norton found that 9 of 10 companies fail to implement their strategies due to four reasons:

1. Ninety-five percent of employees do not understand the organization's strategy.

2. Executive teams spend less than one hour per month discussing strategy.

3. Only one fourth of management's compensation is linked to strategy.

4. Budgets are not linked to strategy in 66 percent of organizations (p. 11).

The Harvard Business Press (2005) maintained the need for financial measures as proof of a strategy's success, but they also noted that financial ratios fall short. Financial numbers display how an organization performed in the past; managers have been using these numbers for years to ...