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ALIGNMENT

Using the Balanced Scorecard


to Create Corporate Synergies
ROBERT S. KAPLAN and DAVID P. NORTON

ROBERT KAPLAN is a professor at the Harvard Business School. He is a co-founder of the Balanced
Scorecard Collaborative, a business consulting company. Dr. Kaplan is a business consultant, public
speaker, researcher and teacher. He has published more than 120 articles or papers and twelve books
including three other books he co-authored with Dr. Norton; The Balanced Scorecard, The Strategy-Focused
Organization and Strategy Maps. Dr. Kaplan is a graduate of M.I.T. and Cornell University.
DAVID NORTON is president of the Balanced Scorecard Collaborative, a consulting company he co-founded
with Dr. Kaplan. Dr. Norton serves as a management consultant, researcher and public speaker.
The Web site for this book is at www.bscol.com.

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Alignment - Page 1

MAIN IDEA
The whole idea of forming a corporation is to achieve synergies – the generation of more added than all the various parts of the
corporation could achieve if they were acting on their own. All too often, however, opportunities for synergies are dissipated when
business units work at cross-purposes or have conflicting goals. To correct such organizational problems, alignment is needed at the
corporate level which will then cascade down in such a way business units, support functions, investors and even external partners
are better coordinated.
The ideal mechanism for creating this degree of alignment is to develop an enterprise value proposition consisting of a Balanced
Scorecard and a Strategy Map. This enterprise value proposition can then be used as a template for business units, support functions
and external partners of the business to link and coordinate their activities. At the same time, the enterprise value proposition is also
useful in explaining corporate activities to outside investors in a consistent way.
In practical terms, the best way for a corporation to generate synergies and add value is to get everyone working together on crafting
well aligned Balanced Scorecards and Strategy Maps at the enterprise, business unit, shared-service and external partner levels.
Once all these value propositions are compatible with each other, alignment just naturally follows, and so too will synergies.

Corp. Head Office


Stage 1 Enterprise
Strategy Map Balanced Scorecard
Value Proposition
Operating Units

Strategy Map Balanced Scorecard Business Unit Stage 2


Value Proposition
Service Units
Stage 3 Shared Services
Strategy Map Balanced Scorecard
Value Proposition
External Entities
Partner
Strategy Map Balanced Scorecard Stage 4
Value Proposition

The Alignment Sequence


(Note: Each alignment activity is an opportunity to create synergy and value).
Foundation – Strategy Maps and Balanced Scorecards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 2
A Balanced Scorecard uses four perspectives – financial, customer, internal process and learning – to
describe how a business aspires to create shareholder value. A Strategy Map takes the four perspectives
of the Balanced Scorecard and shows all the relevant cause-and-effect relationships.
Stage 1 – Corporate headquarters specifies an enterprise value proposition . . . . . . . . . . . . . . . . . . Pages 3 - 4
The alignment process starts when corporate headquarters articulates an enterprise value proposition.
This will not only clarify what the corporate priorities are but will also serve to create space where synergies
can be developed. An enterprise-level Strategy Map and Balanced Scorecard are the foundation for
creating synergies through alignment.
Stage 2 – Operating units develop their own unique yet consistent value propositions . . . . . . . . . . . . . Pages 4 - 5
Armed with the enterprise scorecard, each business unit can then develop its own Strategy Map and
Balanced Scorecard which will be consistent with the enterprise equivalents. Doing this allows each unit to
bring together whatever is needed to be able to compete aggressively in their local markets whilst at the
same time contributing to corporate-level synergies.
Stage 3 – Shared-services units develop their value propositions to support the operating units . . . . . . . Pages 6 - 7
Next, shared-services units – human resources, information technology, finance, planning, etc. – develop
Strategy Maps and Balanced Scorecards which support the business units and enterprise priorities. Doing
this transforms these shared-service units from being viewed as discretionary expense centers to become
strategic partners who help the operating units achieve their goals and objectives. This alignment can be
either top-down or bottom-up depending on a wide number of corporate preferences and capabilities.
Stage 4 – Additional alignment synergies are sought by working with external partners . . . . . . . . . . . . Pages 7 - 8
Finally, once all of the internal operating and services units are aligned, the enterprise can exploit any
additional alignment opportunities which may arise through its relationships with external partners –
customers, suppliers, joint venture partners and even shareholders. By making the company’s Strategy
Maps and Balanced Scorecard’s act as a centralized and consistent information resource, added value
can be created through better alignment. A consensus will emerge about the objectives of the alliance
leading to better understanding and increased levels of trust. This, in turn, should lead to lowered
transaction costs as there will be less operational misalignment and subsequent waste.
Alignment - Page 2

A Strategy Map is a visual representation of the relationships


Foundation Strategy Maps and Balanced Scorecards
captured by the Balanced Scorecard. In business, you can’t
manage what you cannot measure, nor is it possible to measure
what you cannot describe. Strategy Maps show how the tangible
A Balanced Scorecard uses four perspectives – financial,
and intangible assets of the business combine to create added
customer, internal process and learning – to describe how a
value for the organization. Strategy Maps provide a framework
business aspires to create shareholder value. A Strategy Map
by which important management decisions can be made in such
takes the four perspectives of the Balanced Scorecard and
a way the organization moves forward consistently and
shows all the relevant cause-and-effect relationships.
productively towards its specified objectives.
Alongside an organization’s Strategy Map and Balanced
In essence a Balanced Scorecard describes how a business Scorecard. It is then possible to place:
creates added value through enhanced customer relationships
n Action Plans – which detail the different initiatives taken in
driven by excellence in internal processes. As these internal
each part of the business, along with their respective
processes become better aligned, more value is created. The
budgetary allocations.
Balanced Scorecard uses four different perspectives:
n Strategic Plans – which can be used to guide management
1. Financial – What are our shareholder expectations for
decision making about areas of future investment.
financial performance?
n Other frameworks and metrics which measure and reflect the
2. Customer – To reach those financial objectives, how do we
organization’s ongoing progress.
actually create value for our customers?
3. Internal – Which processes must we excel at in order to “Corporations must continually search for ways to make the
create satisfied customers and shareholders? whole more valuable than the sum of its parts. Alignment is
4. Learning and Growth – How can we align our intangible critical if enterprises are to achieve synergies throughout their
assets – such as our people, our systems and our culture – in business and support units. A new measurement and
such a way that doing this will improve the critical processes? management system, based on Strategy Maps and Balanced
Scorecards, helps corporations define and capture the benefits
Each of these perspectives are linked in cause-and-effect of organizational alignment.”
relationships which the Balanced Scorecard is designed to – Robert Kaplan and David Norton
capture and represent. For example, if you were to introduce a
training program which improved the skills of your employees “Most enterprises consist of multiple business and support units.
(something in the learning and growth perspective), then you Corporations operate diverse units under a single corporate
would naturally expect this training to lead to improved customer umbrella to capture economies of scale and scope. But to
service (the internal perspective). This enhancement in achieve these benefits, the corporate headquarters needs a tool
customer service should then translate into greater customer to articulate a theory for how to operate the multiple units within
satisfaction and increased loyalty (the customer perspective) the corporate structure to create value beyond what the
which, in turn, will logically result in increased revenues, repeat individual units could achieve on their own, without central
sales and hopefully greater margins of profit (all measures in the guidance and intervention. After all, a corporate headquarters
financial perspective). The four perspectives of the Balanced may subtract more than it adds. The value creation that offsets
Scorecard captures the answers to these questions in greater those headquarters costs must arise from aligning decentralized
detail and with the relationships clearly identified and shown so units to create a new source of value.”
good management decisions can be made. – Robert Kaplan and David Norton

Strategy Map Balanced Scorecard Action Plan

Objective Measure Target Initiative Budget

Financial •XXXXXX •XXXXXX + XX% •XXXXXX $XXX


Long-Term Shareholder Value
Perspective •XXXXXX + XX% •XXXXXX $XXX
Productivity Growth
•XXXXXX •XXXXXX XX% •XXXXXX $XXX
Customer
Customer
Perspective •XXXXXX XX% •XXXXXX $XXX

Internal Operations Customer Product Regulatory •XXXXXX •XXXXXX XX% •XXXXXX $XXX
Perspective Management Management Innovation and Social •XXXXXX •XXXXXX
X months $XXX

•XXXXXX •XXXXXX XX% •XXXXXX $XXX


Learning & Human Information Organization
Growth •XXXXXX XX% •XXXXXX $XXX
Capital Capital Capital
Perspective •XXXXXX XX% •XXXXXX $XXX

Total $XXX
Alignment - Page 3

The real strength of doing this from a corporate perspective


Stage Corporate headquarters specifies
arises from the fact a Balanced Scorecard has the four
1 an enterprise value proposition
dimensions or perspectives. Corporations can attempt to create
synergies by leveraging any of those dimensions across the
enterprise. To be more specific:
The alignment process starts when corporate headquarters
articulates an enterprise value proposition. This will not only
1 Financial Perspective
clarify what the corporate priorities are but will also serve to
create space where synergies can be developed. An To attempt to achieve financial synergies, the traditional
enterprise-level Strategy Map and Balanced Scorecard are the approach was to create conglomerates – companies which had
foundation for creating synergies through alignment. units operating in a number of industries. The idea here was
when one part of the economy was down, the units operating in
Of necessity, corporations are continually searching for better other parts of the economy would be doing well and would offset
ways to make the whole more valuable than the sum of the the slower units. Under the one holding company would be a
organization’s individual parts. If corporate headquarters cannot collection of companies with few shared capabilities,
succeed in doing this, then it would make more sense for the technologies or customers.
company to be broken into its individual parts and for each to be When the Balanced Scorecard approach is used, the head office
operated completely independently. In simple terms, gains a superior ability to allocate capital and manage risks right
enterprise-wide alignment is needed, otherwise all the various across all its business units because there are common metrics
parts of the organization will head off in different directions. available. The executives of the corporation can become more
The best way for synergy to arise is if the enterprise value active in managing the business as a portfolio of companies.
proposition is encapsulated and captured in a Strategy Map and Better resource allocation can be made so as to generate better
Balanced Scorecard. This then becomes the starting point for financial results. For example, sales and market share growth
the different business units and shared service units to create can be emphasized and invested in for units which are early in
their own corresponding Strategy Maps and Balanced their product cycle, while the generation of free cash flow can be
Scorecards. brought to the fore for units which have more mature products.
Synergy can be created by operating an internal capital market
Corp. Head Office where business units can seek financing on better terms than
would be available from external capital sources.

Enterprise Value Proposition 2 Customer Perspective

Enterprise Enterprise In some ways the “Holy Grail” of a diversified business enterprise
Strategy Map Balanced Scorecard is to have shared customers – the customers of one business
unit being more inclined to do business with another business
unit on the strength of that existing relationship. When a
corporate level theme has been established by the explicit
1 Financial statement of an enterprise value proposition, the opportunities
for synergies of this type to arise are significantly increased.
2 Customer
Four Companies can create synergies in this area by creating unique
Perspectives customer solutions which leverage the products and services of
3 Internal
multiple business units. This can result in the delivery of more
4 complete customer solutions which a less diversified business
Learning & Growth
cannot match. Convenient and well integrated solutions can be
offered around a common theme established by the enterprise
Strategy Map and Balanced Scorecard. Cross-selling existing
“An enterprise Strategy Map and Balanced Scorecard will clarify customers additional products and services can also underpin
corporate priorities, which can then be clearly communicated to impressive rates of revenue growth.
each business and support unit, and also to the board of Similarly, other synergies can also be generated by the fact
directors and key customers, suppliers, and alliance partners. geographically dispersed business units provide a consistent,
Corporate headquarters subsequently examines the Strategy high-quality buying experience for customers. When the
Maps and scorecards developed by these units to monitor enterprise value proposition is used to motivate and then monitor
whether and how the enterprise’s priorities are being the delivery of products and services throughout a large number
implemented by each one. Used in this way, the enterprise of dispersed business units, customers of one part of the
Strategy Map and Balanced Scorecard provides corporate business know what to expect when they deal with another
executives with a governance framework that helps to unlock separate business unit. The consistency of that branded
previously unrealized value from corporate synergies.” experience can be a substantial competitive advantage.
– Robert Kaplan and David Norton
“A satisfied customer is a precious asset. The goodwill
“Understanding how to create alignment in organizations is a big generated by a positive customer relationship translates into the
deal, one capable of producing significant payoffs for all types of potential for repeat purchases and an extension of the
enterprises.” relationship to other company products and services.”
– Robert Kaplan and David Norton – Robert Kaplan and David Norton
Alignment - Page 4

3 Internal Perspective Stage Operating units develop their own


2 unique yet consistent value propositions
Every enterprise is attempting to achieve economies of scale by
centralizing key processes and sharing them between a number
of business units. When the Balanced Scorecard is used as the Armed with the enterprise scorecard, each business unit can
basis for this integration and sharing attempt, accountability can then develop its own Strategy Map and Balanced Scorecard
be measured accurately which in turn means collaboration will which will be consistent with the enterprise equivalents. Doing
increase thereby leading to a reduction in risk. The fact using the this allows each unit to bring together whatever is needed to be
Balanced Scorecard and Strategy Map force an organization to able to compete aggressively in their local markets whilst at the
articulate its business strategy clearly cannot be overstated in same time contributing to corporate-level synergies.
terms of the benefits this delivers for organizations.
Having a clear and concise customer value proposition also The second opportunity for companies to develop synergies is
helps a business achieve synergies from other value-chain when each business unit develops its own Strategy Map and
integration activities. Customers typically combine the products Balanced Scorecard which are consistent with the enterprise
or services of one business with those of another service value proposition.
provider to achieve some combination which adds more value.
These combinations create opportunities for enterprises to Corp. Head Office
expand their activities into related areas in the customer value
chain. Ideally, this will create one-stop shopping where
customers don’t feel any need to look elsewhere. A good Enterprise Value Proposition
example of this was when automobile manufacturers started
offering finance. By doing this, a new and improved customer Enterprise Enterprise
value proposition was created, generating measurable Strategy Map Balanced Scorecard
synergies for the automakers. Having a corporate scorecard
means many similar cross-business relationships can be formed
and evaluated for their benefits.

4 Learning & Growth Perspective Business Unit Business Unit


Strategy Map Balanced Scorecard
In the knowledge-based global economy, intangible assets like
human capital can account for nearly 80-percent of an Operating Unit Value Proposition
organization’s value. Whichever company learns best how to
most cost-effectively convert these intangible assets into
tangible results can move quickly ahead of its competition. An
enterprise-wide value proposition is a very effective way to This alignment is always a challenge because each operating
develop human capital assets because: unit must balance various tasks which sometimes conflict.
Business units must be able to do whatever is required to
n A value proposition enables an organization to develop its become a formidable competitor in its own markets. In practical
leadership across its entire portfolio of operating units. terms, that means each business unit must be free to choose its
Employees can gain experience in diverse business units and own individual and specific:
geographic regions. An efficient internal labor market can • Target market niches.
emerge between the operating companies where the best • People, systems and culture.
talent gets applied to the most challenging problems facing • Internal operating processes.
the organization as a whole. • Customer management processes.
n The sharing of knowledge and best practices can be • Innovation processes.
facilitated. For example, a great information technology At the same time as each business unit needs to configure its
system developed for one of the business units can be used operations to meet the demands of its marketplaces served,
elsewhere rather than requiring each unit to develop its own there must also be a contribution to corporate-level synergies. In
unique system. Great ideas can be rapidly transmitted and other words, business units also need to:
ultimately assimilated when there is a consistent value • Incorporate corporate themes and priorities into operations.
proposition as a conduit. • Serve corporate customers.
n The enterprise can create synergies by stating a strategic • Integrate and coordinate with other business units.
theme which then encourages links and collaboration By aligning the business unit value proposition with the
between multiple business units. Doing this allows knowledge enterprise value proposition, there is a greater likelihood
to be shared for the benefit of all. This enables the enterprise synergies will be found. This is a deliberate attempt to create
to become better at what it does because the lessons learned synergies rather than a fragmented or uncoordinated attempt.
in one part of the organization can be applied everywhere Most likely, this alignment process will need to be part of the
rather than requiring each unit to learn new ideas by itself. annual budgeting and reporting cycle. That way as changes are
The practical effect of an enterprise value proposition is more made at the enterprise level, these will gradually cascade down
learning and development takes place within a shorter period of to the business unit level as each operating unit realigns itself
time. When this growth is linked directly to the strategy with the corporate themes and priorities. It is reasonable to
employed, the value of the enterprise’s intangible assets can expect these priorities to change and evolve over time.
grow dramatically.
Alignment - Page 5

Note the alignment process has a definite top-down bias. To sustain this alignment on an ongoing basis:
Corporate synergies are generally defined and identified at the n Never forget you can’t manage what you don’t measure – and
top but then actually realized at the business unit level. therefore you need to identify some alignment measures you
Enterprises need to communicate, educate, motivate and then can use to track how you’re going in the key areas of your
align employees with the strategy encapsulated in the enterprise business – most likely customer acquisition, customer
value proposition. Alignment is never a one-time event but will retention, new product development and employee
always require ongoing input and proactive management. competency development. Ideally, you want to develop an
In practice, there are eight alignment checkpoints where alignment measure for each of the eight alignment
synergies can be created by aligning what one part of the checkpoints. You might then aggregate these measures into
business enterprise is doing with another separate and distinct a single organizational alignment index so you can track
part. These alignment checkpoints are: progress (or lack thereof) over time.
1. When the corporation’s board of directors reviews and n Make a senior executive responsible for running the
approves the overall enterprise value proposition – which alignment process – because unless someone is
most often is developed by the CEO and senior managers. accountable, alignment will get pushed aside by more
2. When the enterprise value proposition is translated into pressing day-to-day activities. Some organizations have
corporate policies which will be administered on a day-to-day created an alignment champion at vice president level
basis by the corporate services or support units. reporting to the CEO to give this effort the visibility it requires.
This senior executive can then head up a committee which will
3. When the corporate priorities are cascaded into business
keep the alignment process moving in the right direction
unit value propositions and strategies.
n Build alignment and accountability into all the key
4. When the business units communicate with customers and
management processes undertaken throughout the year – so
attempt to sell products and services based on a consistent
this is not viewed as a one-off activity but a regular aspect of
customer value proposition.
the way business gets done. Alignment needs to be
5. When the strategic priorities of the business units are discussed regularly in light of the various changes which are
incorporated into the strategies of the shared services units. constantly taking place around the organization. Keep this as
6. When services are delivered to the operating units by the a priority by discussing alignment at every opportunity.
shared services units. n Never lose sight of the fact alignment is inherently outside the
7. When partners and other external entities become aligned normal organizational structure – because it requires the input
with the corporate strategy. and cooperation of people from different parts of the
organization. There is generally no obvious place for ideas
8. When the shared corporate priorities are reflected in the
which are executed across business units, services units,
strategies business units use to interact with the vendors and
partners, external allies and customers. More often than not,
others who make up their supply and distribution chains.
all of these units are used to operating in isolation from each
If an organization is aligned at each of these eight checkpoints, other. Something like alignment which will cross many
all its initiatives and subsequent actions will be directed towards boundaries will seem quite unnatural. Anticipate that, and do
common strategic priorities. Integration and ultimately synergies everything possible to develop an organization-wide
are created whenever units work together rather than in alignment process which is as natural as possible. The more
isolation. Many enterprises have great difficulty executing their alignment can be made part of the way an organization
preferred business strategies simply because these alignment naturally does business, the more it will occur and the greater
checkpoints are not deliberately managed or coordinated. the chances of synergies become.

1 2
Board of Directors Enterprise Value Proposition Corporate Services Units

3 4
Business Units Business Unit Value Proposition Customers

5 6
Services Units Shared Services Value Proposition Business Units

7 8
Partners and Allies Partner Value Proposition Vendors and Others
Alignment - Page 6

2. Support units need to align their own internal organizations –


Stage Shared-services units develop their value
so they can execute the required strategy. Again in practical
3 propositions to support the operating units
terms this means each services unit needs to describe how it
will acquire, develop and then deliver strategic services to the
operating units. This is typically achieved by building a
Next, shared-services units – human resources, information
partner relationship with the different business units. The
technology, finance, planning, etc. – develop Strategy Maps and
support unit’s own Strategy Map and Balanced Scorecard
Balanced Scorecards which support the business units and
will communicate this to all support personnel and enable
enterprise priorities. Doing this transforms these shared-service
performance to be monitored and analyzed. As a general
units from being viewed as discretionary expense centers to
rule-of-thumb, a services unit Balanced Scorecard will
become strategic partners who help the operating units achieve
usually have three general themes:
their goals and objectives. This alignment can be either
top-down or bottom-up depending on a wide number of n Measures of the support unit’s operational excellence and
corporate preferences and capabilities. efficiency in terms of services delivered and adherence to
budget. Other operational measures will often include:
• The total cost per transaction.
More often than not, the output of the shared-services units are • The quality of the specific outputs generated.
intangible, and may consist of: • The support unit’s response time.
• Some expert advice which saves the company money.
n Measures of the strength of the relationship between the
• A trained, motivated employee.
services unit and the operational units who are its
• The design or enhancement of a key business process.
customers.
• The establishment and nurturing of a partner relationship.
n Measures of the effectiveness of the support unit in
It’s difficult for corporations to quantify the value of these outputs
supporting the enterprise value proposition. This will
which in turn makes evaluating support services units
reflect whether the services unit is regularly providing its
challenging. Adding to these issues is the fact support services
internal customers with new capabilities which will
are often staffed by experts and specialists in their fields and
enhance their respective abilities to execute their own
these people may have a culture far removed from that found in
strategies.
most operational units. Given all these issues, it isn’t difficult to
see why support service units sometimes become isolated from 3. The services units periodically assess their own
their own internal customers. performance – using service agreements, internal customer
feedback, customer ratings or internal audits. Some
organizations have found this is best accomplished by
Operating Unit Value Proposition
conducting an annual strategy discussion forum at which the
Business Unit Business Unit various business units and support units coordinate their
Strategy Map Balanced Scorecard strategies for the coming year. At these meetings:
n Business units can present their strategies to the support
units and detail how the support units can specifically
contribute to their anticipated success.
Service Unit Service Unit n Support units can review their past year’s performance
Strategy Map Balanced Scorecard and propose specific objectives, targets and initiatives for
the future.
Shared Services Value Proposition n Both business unit and support unit personnel can
discuss these plans and assist in developing the Strategy
Maps and Balanced Scorecards for the support units.
For synergies to be created at the support services level, a
Most corporations are aware some of the routine activities
simple alignment process is required.
performed by services units are necessary for the organization to
1. The services units align their strategies with those of the function but don’t provide the organization with any meaningful
business units and the enterprise as a whole – which starts competitive advantages. For example, if the company does its
by having a clear understanding of the Strategy Maps and payroll processing, benefits administration or computer network
Balanced Scorecards developed at enterprise and business maintenance to world-class standards, the company won’t
unit levels. The services unit should identify which specific genuinely be any further ahead of a competitor who is slightly
parts of the business unit’s strategies can be influenced less demanding in these same areas. It makes good economic
directly or indirectly by what the services unit does. Each sense for these activities to be outsourced to a low-cost provider
support function can then determine how it can help the who has the advantage of economies of scale.
business units and the enterprise achieve their strategic
objectives. These objectives should then appear as “I doubt that many companies can respond crisply to the
high-level objectives on the support unit’s own Strategy Map question, ‘How does staff provide competitive advantage?’ We
and Balanced Scorecard. When properly developed, these have just started to ask our staff departments to explain to us
objectives will form a common thread between the business whether they are offering low cost or differentiated services. If
and the support unit. As obvious as all this might sound, in a they are offering neither, we should probably outsource the
large number of businesses very little time and effort is spent function.”
on ensuring the support or services units actually understand – Larry Brady, president, FMC Corporation
what it is the operating units are trying to achieve.
Alignment - Page 7

Alignment between business units and services units is never a


Stage Additional alignment synergies are
one-time event. It is always ongoing. To sustain this momentum,
4 sought by working with external partner
four key components are needed:
1. There must be a relationship manager designated by each
services unit – who will be responsible for the alignment of Finally, once all of the internal operating and services units are
that services unit with all of the organization’s operating units aligned, the enterprise can exploit any additional alignment
and head office. This relationship manager has to own all the opportunities which may arise through its relationships with
unit’s processes for developing, communicating and external partners – customers, suppliers, joint venture partners
reviewing the unit’s Balanced Scorecard and Strategy Map. and even shareholders. By making the company’s Strategy
2. There needs to be a coherent and integrated planning Maps and Balanced Scorecard’s act as a centralized and
process available – by which the operating unit’s objectives consistent information resource, added value can be created
can be communicated and adjusted if necessary. The through better alignment. A consensus will emerge about the
services unit needs to participate fully in this planning rather objectives of the alliance leading to better understanding and
than having items imposed on its agenda from on high. This increased levels of trust. This, in turn, should lead to lowered
planning ultimately results in the creation of a Strategy Map transaction costs as there will be less operational misalignment
and a Balanced Scorecard that matches the needs of the and subsequent waste.
operating units served.
3. Service agreements need to be developed – which will define External partners – key suppliers, influential customers, alliance
in detail the deliverables the support unit is expected to participants and shareholders, for example – can be a
provide. The service agreements will also specify required tremendous source of synergy for a corporation. The key to
service levels and anticipated costs. It’s also helpful if an harnessing this resource is the alignment process based on
initiative owner is assigned who will be responsible for cascading the organization’s Strategy Map and Balanced
keeping the services unit focused on delivering everything Scorecard.
specified in the service agreement. Corp. Head Office
4. Internal customer feedback sessions need to be scheduled
regularly – at which initiative owners from the services units
can meet with their counterparts from the operating units and Enterprise Value Proposition
talk through any problems which have arisen. These
meetings may be held at whatever interval makes sense as Enterprise Enterprise
long as they are scheduled in advance and then actually Strategy Map Balanced Scorecard
followed through on. Most organizations hold these feedback
sessions monthly or quarterly. This is also a good time to
develop a joint cost-benefits analysis. A realistic assessment
of the costs and benefits being derived from the service
agreement will help validate the contribution the services unit Business Unit Business Unit
is making. If the incentive compensation system of the Strategy Map Balanced Scorecard
services unit is tied to the results achieved, this is also a good
time to evaluate whether bonuses have been earned. Operating Unit Value Proposition
Carrying out all these alignment activities will help contribute to
organizational synergies in a meaningful way. Surprisingly, most
organizations never get around to doing this. In the vast majority
of cases, alignment synergies between services units and Service Unit Service Unit
operating units will be created based on three strategic themes: Strategy Map Balanced Scorecard
1. The delivery of low-cost high-quality basic services to the
operating units at a cheaper price than the operating unit can Shared Services Value Proposition
secure these necessary services elsewhere.
2. The building of partnerships with the business units so the
services unit becomes a trusted adviser to the operating
units on how best to execute their strategies.
External Entity External Entity
3. The creation and delivery of new and innovative services Strategy Map Balanced Scorecard
which will help the business units succeed with their own
preferred strategies.
Partner Value Proposition
To excel in these three areas, service units need to provide
employees with the training they require to add new skills,
knowledge and competencies. Services units also need to Considerable synergies can result as companies forge deeper
transform their cultures from being focused on functional and more effective relationships with external partners. The
excellence to being focused on their internal customers instead. cascading effect of the organization’s value proposition,
There needs to be an ongoing commitment to deliver solutions combined with the intense collaborative effort required to
which ultimately add value for their business partner customers. develop a Strategy Map and Balanced Scorecard which
When all of these requirements come together, new synergies describes the relationship, can build great consensus and
can and will emerge. motivation. Greater accountability also helps.
Alignment - Page 8

At the present time, most organizations evaluate their external management system. With the strategy clearly defined, all
partner relationships in terms of a collection of key performance components of the management process can be designed to
indicators which describe the operational performance metrics. create alignment.”
When an enterprise attempts to build a Balanced Scorecard and – Robert Kaplan and David Norton
a Strategy Map together with an external partner, the senior
managers from both entities need to reach a consensus about “Any interface where two disparate organizations – corporate,
the objectives of the relationship. Doing this will create business unit, support unit, or supplier – come together
understanding and trust which often leads to reduced represents a potential source of value creation through
transactional costs as any existing misalignments between the alignment. The enterprise value proposition and the cascading
two parties get addressed. process of Strategy Maps and Balanced Scorecards are the
mechanisms that unleash and capture this incremental value.”
A co-developed and clearly understood Balanced Scorecard – Robert Kaplan and David Norton
and Strategy Map between the organization and its external
partners will: “Corporations follow different paths to achieve enterprise-wide
n Provide an explicit contract by which the interorganizational alignment. Some start at the top, at the corporate level, and then
performance can be measured quantitatively. cascade sequentially down the organizational hierarchy. Others
start in the middle, at the business unit level, before building a
n Allow for items such as timeliness, innovation, quality and
corporate scorecard and map. Some launch an enterprise-wide
flexibility to be incorporated into the relationship.
initiative right at the start, and others conduct a pilot test at one or
n Increase the amount of coordination which is present two business units before extending the scope to other
between both entities. enterprise units. In our experience, there is not a single correct
n Allow supply chains to be better aligned and optimized. answer. We have seen multiple approaches used, each of which
n Enhance the amount of collaborative planning which takes ended up with successful implementation.”
place between your organization and your external partners. – Robert Kaplan and David Norton

n Establish a common set of measures by which all parties “Most organizations eventually use an iterative process, starting
measure ongoing performance. with corporate guidelines for business unit Strategy Maps and
n Provide a good foundation for governance of the partnership scorecards but using the idea emanating from the business units
by the respective organizations. to revise the corporate map and scorecard. Pushing the
scorecard down through the organization too hard and too early
n Develop good performance indicators which can be used to could lead to resentment and a backlash. Most organizations
determine incentive compensations for all the parties have found that flexibility is the key ingredient during the early
involved. stages of cascading. Once an organization is using the tool –
n Generate a shared set of metrics everyone can use to following a process of regularly reporting on and talking about
describe any available synergies. strategy – imposing corporate priorities from the top down
n Articulate common objectives everyone can work towards. becomes more acceptable.”
– Robert Kaplan and David Norton
In all, jointly developing a Balanced Scorecard and Strategy Map
is an open and transparent process which enhances “An outstanding corporate strategy is not a random collection of
communication and understanding. The finished product individual building blocks but a carefully constructed system of
provides a clear road map everyone can use to move forward interdependent parts. In a great corporate strategy, all of the
and grow the value of the relationship. Creating this high level of elements (resources, business, and organization) are aligned
alignment of interests also means more opportunities to add with one another. That alignment is driven by the nature of the
value by doing new things will become apparent. firm’s resources – its special assets, skills and capabilities.”
– D. Collis and C. Montgomery, authors
“Strategy execution is not a matter of luck. It is the result of
conscious attention, combining both leadership and “Enterprises can create organization synergies in many ways.
management processes to describe and measure the strategy, Some enterprises leverage financial synergies through effective
to align employees with the strategy through intrinsic and merger and acquisition policies and skilled management of
extrinsic motivation and targeted competency development internal capital markets. Others leverage a common brand or
programs, and, finally, to align existing management processes, customer relationship across multiple business units and retail
reports and review meetings with the execution, monitoring, and outlets. Still others gain scale economies by having multiple
adapting of the strategy.” business units share common processes and shared services,
– Robert Kaplan and David Norton or they generate economies of scope through effective
integration of units across an industry value chain. And finally,
“The Balanced Scorecard, since its introduction in 1992, has
enterprises create synergies when they develop and share
evolved into the centerpiece of a sophisticated system to
human, information and organization capital across multiple
manage the execution of strategy. The effectiveness of the
units. Corporate headquarters must be explicit about the
approach is derived from two simple capabilities: (1) the ability to
synergies it expects to create and then must implement a
clearly describe strategy (the contribution of Strategy Maps) and
management system to communicate and capture them.”
(2) the ability to link strategy to the management system (the
– Robert Kaplan and David Norton
contribution of Balanced Scorecards). The net result is the ability
to align all units, processes, and systems of an organization to its
strategy. The core idea is that strategy is at the center of the

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