Session 8

Session 8
Organizing for success

Balanced scorecard
Dr. Michelle O'Toole 1

ORGANIZING FOR SUCCESS

Learning outcomes
• Analyse the main organisational structural

types in terms of their strengths and
weaknesses.
• Identify key issues in designing organisational
control systems (such as planning and
performance targeting systems).
• Recognise how the three strands of strategy,
structure and systems should reinforce each
other in organisational configurations and the
managerial dilemmas involved.
• Develop an appropriate balanced scorecard,
which helps managers to implement strategy
Structures and systems
• Structures give people formally defined

roles, responsibilities and lines of reporting.
The structure is like the skeleton of an
organisation and creates its basic framework.
• Systems support and control people as they
carry out structurally defined roles and
responsibilities. Systems are like the muscles
of an organisation that provide movement and
coherence.

Organisational configurations

Structural types
Functional Divisional
Multinational/
Matrix
transnational
Project

A functional structure (1)
The functional structure divides responsibilities
according to the organisation’s primary specialist roles such as
production, research and sales.

A functional structure (2)
Advantages Disadvantages
• Chief executive in • Senior managers
touch with all overburdened with
operations routine matters
• Reduces/simplifies • Senior managers
control mechanisms neglect strategic issues
• Clear definition of • Difficult to cope with
responsibilities diversity
• Specialists at senior • Coordination between
and middle functions is difficult
management levels. • Failure to adapt

A multidivisional structure (1)
The divisional structure is built up of
separate divisions on the basis of products,
services or geographical areas.

A multidivisional structure (2)
• Flexible (add or • Duplication of central
divest divisions) and divisional
• Control by functions
performance • Fragmentation and
• Ownership of non-cooperation
strategy • Danger of loss of
• Specialisation of central control
competences
• Training in strategic
view
Matrix structures (1)
The matrix structure combines different structural dimensions
simultaneously, for example product divisions and geographical
territories or product divisions and functional specialisms.

The matrix structure combines different structural dimensions

simultaneously, for example product divisions and geographical
territories or product divisions and functional specialisms.

• Integrated • Length of time to
knowledge take decisions
• Flexible • Unclear job and task
• Allows for dual responsibilities
dimensions • Unclear cost and
profit responsibilities
• High degrees of
conflict

Multinational structures
Source: Reprinted by permission of Harvard Business School Press. From Managing Across Borders: The Transnational Corporation, 2nd edition by C.A. Bartlett and
S. Ghoshal, Boston, MA, 1998. Copyright © 1998 by the Harvard Business School Publishing Corporation. All rights reserved.
Transnational structures
The transnational structure combines local

responsiveness with high global coordination.
Key advantages include:

• Knowledge-sharing
• Specialisation
• Network management.

Project-based structures
A project-based structure is one
where teams are created, undertake
the work (e.g. internal or external
contracts) and are then dissolved.

Comparison of structures

• How would you describe the structure of your work
organization?

Design tests for
checking structural solutions
• Market Advantage • Specialised Cultures

• Parenting Advantage • Difficult Links
• People • Redundant Hierarchy
• Feasibility • Accountability
• Flexibility

Types of control systems (1)

Types of control systems (2)
• Direct supervision – direct control of strategic

decisions by one or a few individuals, typically
focused on the effort of employees.
• Cultural systems aim to standardise norms of
behaviour within an organisation in line with
particular objectives.
• Performance targets focus on the outputs of an
organisation (or its parts) such as product quality,
revenues or profits.
• Internal market systems – a formal system of
(a) ‘contracting’ for resources or inputs and (b) for
supplying outputs to other parts of an organisation.
Planning systems
Planning systems plan and control the

allocation of resources and monitor their
utilisation. The focus is on the direct
control of inputs.

Strategy styles
Source: Exhibit 1, R. Lawson, W. Stratton and T. Hatch (2005), ‘Achieving strategy with Scorecarding’, Journal of Corporate Accounting and Finance, March–April, 62–8: p. 64.

Strategic planning style
The strategic planning style – is the

archetypal planning system.
It features:
• Strong planning influence from the centre but
relatively relaxed performance accountability
from the business units.
• The centre allocates all the resources to
business units.
• The centre exercises a high degree of control
on how strategy is implemented.
Financial control style
The financial control style involves very little

central planning. It features the following:
• The business units each set their own strategic plans (probably
after some negotiation with the corporate centre).
• Business units are strictly accountable for their performance and
financial results.
• Managers typically have a lot of autonomy and receive high
levels of bonus for success but are likely to be dismissed for
poor results.
• This style fits with the portfolio manager view of the corporate
centre.

Strategic control style
The strategic control style lies in the middle

with a more consensual approach to strategy. It
features:
• Moderate levels of business unit accountability
• The corporate centre acts as a ‘coach’ to managers in business
units and is supportive
• This style relies on cultural systems to foster trust and mutual
understanding
• This style fits with the synergy manager and parental developer
view of the corporate centre

Cultural systems
Cultural systems aim to standardise norms of

behaviour within an organisation in line with
particular objectives.
Cultural systems are an indirect form of control
and rely on the self control of employees.
There are three key cultural systems:
• Recruitment – selecting people who ‘fit’
• Socialisation – behaviour is shaped by social
processes (e.g. training, mentoring or symbols)
• Rewards – appropriate behaviour receives
rewards in the form of pay, promotion or praise.
Performance targeting systems (1)
Performance targets focus on the outputs of an

organisation (or part of an organisation) such as product
quality, revenues or profits.
• These targets are often referred to as key performance
indicators (KPIs).
• The performance of the organisation is judged on its ability
to meet these targets.
• Within boundaries the organisation is free to decide on
how to reach these targets.

This approach is appropriate:

• In large businesses – as with the financial
control style, the centre may set targets for
business units but not get involved in how the
targets are achieved.
• In regulated markets – government appointed
regulators may exercise control through agreed
KPIs (e.g. service quality in utilities).
• In the public services – governments are trying
to shift control from input control to performance
outcomes (e.g. in healthcare or education).
There are several problems in setting targets:
• Inappropriate measures – choosing things

that are easily measured but don’t reflect real
needs.
• Inappropriate target levels – they may set
unrealistically high or at a level that is too
easy to achieve (and leads to complacency).
• Excessive internal competition – if
individual business units are rewarded on
their own performance there will be little
incentive to collaborate, share resources or
best practices.

Balanced scorecards
Balanced scorecards set performance targets

according to a range of perspectives, not only
financial.
****Coming back to this later

• How would you describe the control systems in your
organization?
• What happens?
• Do you have any suggestions for improvement?

Configuration dilemmas

Summary
• Successful organising means responding to the key

challenges facing the organisation. This chapter has
stressed control, change, knowledge and
internationalisation.
• There are many structural types (e.g. functional,
divisional, matrix, transnational and project). Each
structural type has its own strengths and weaknesses
and responds differently to the challenges of control,
change, knowledge and internationalisation.
• There is a range of different organisational systems to
facilitate and control strategy. These focus on either
inputs or outputs and can be direct or indirect.

BALANCED SCORECARD

Balanced scorecards
Balanced scorecards set performance

targets according to a range of perspectives,
not only financial.
Typically combine four specific perspectives:
 financial
 customer
 internal
 innovation and learning

Monitoring and control
• What you measure is what you get

– (Kaplan and Norton, 1992)
• Need to identify performance-driver measures that are right for the
business
• Apply them using suitable metrics
• Appropriate interpretation of the results
• A framework for translating the aims and objectives of a business

into a series of key performance measures and targets (Atrill & McLaney
2012, p. 354)
• Popularised by Robert Kaplan and David Norton (The Balanced Scorecard,

1996)
• Strategic performance management tool that recognises that
improvement of quality requires the measurement of performance.
• Requires identification of ‘key performance indicators’, (including
intangible items).
• Combines financial and operational measures
• Customizable formalisation of the measurement process.

BSC: Components
• An organisation’s strategy should be

focused on Key Performance Indicators
(KPI)
• KPI’s should address financial AND non-
financial indicators
• Also leading and lagging indicators
• Leading = input oriented (e.g. skills, investment,
R+D)
• Lagging = output oriented (e.g. sales, revenue)

BSC: Four perspectives
How should we How should we

Financial
appear to our Customer
appear to our
shareholders? customers?
What How can we

Internal
processes must Learning
change and
we excel at? improve?

BSC: Four perspectives
Financial Customer
Internal Learning

Some common KPI’s
Financial Customer
e.g. Gross profit, ROI, e.g. repeat customers,
ROCE, TSR, Debtor satisfaction, % new
days, Revenue per customers, market
employee share
Internal Learning
e.g. operating e.g. Training hours,
efficiency, scrap rate, staff turnover, new hire
inventories, R+D costs retention, qualifications

Leading and lagging indicators
Learning Invest in staff training

Leading indicators
Internal
Improved delivery time
Customer Increased customer satisfaction

Lagging indicators
Financial Increased sales and profit

Feedback loops
Develop
the
strategy
Test and Translate

adapt the
strategy strategy
Monitor Plan
and learn operations

Linking strategy with performance
Strategic
objectives
Initiatives Measures
Feedback and
learning is
essential
Variance Targets

Measures, targets, variance, actions
• A measure is, well, the thing that you measure!

– Profit, ROCE, TSR, market share, customer satisfaction, scrap
rates, inventories, brand awareness.....
– Also known as a KPI
– Should be linked to a specific strategic objective
• A target is a specific value assigned to that measure
– E.g. £10bn, £100/share, 30% etc….
• Variance – how close did you get to your target?
– E.g. +£2bn, -£2/share, +3% etc….
• Action/initiative – how to address the variance?

A typical scorecard
Measure
Objective Target Variance Action
(KPI)
Financial
Customer
Internal
Learning

A typical scorecard – financial elements
Measure
Objective Target Variance Action
(KPI)
Increase Reduce
Financial (1) Profit £100bn -£20bn
profitability costs
Increase Divest
Financial (2) ROCE 5% -2% underperforming
profitability BU’s
Increase Divest
Financial (3) Share price £100/share -£10/share underperforming
TSR BU’s

• Design a balanced scorecard for Ryanair
– Financial
– Customer
– Internal
– Learning

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Organizing for success

Dr. Michelle O'Toole 1

Dr. Michelle O'Toole 2

• Analyse the main organisational structural

• Structures give people formally defined

Dr. Michelle O'Toole 6

Dr. Michelle O'Toole 7

Dr. Michelle O'Toole 8

Dr. Michelle O'Toole 9

Dr. Michelle O'Toole 10

Dr. Michelle O'Toole 11

Dr. Michelle O'Toole 13

The matrix structure combines different structural dimensions

Dr. Michelle O'Toole 14

Dr. Michelle O'Toole 15

The transnational structure combines local

Key advantages include:

Dr. Michelle O'Toole 17

Dr. Michelle O'Toole 18

Dr. Michelle O'Toole 19

Dr. Michelle O'Toole 20

• Market Advantage • Specialised Cultures

Dr. Michelle O'Toole 21

Dr. Michelle O'Toole 22

• Direct supervision – direct control of strategic

Planning systems plan and control the

Dr. Michelle O'Toole 24

Dr. Michelle O'Toole 25

The strategic planning style – is the

The financial control style involves very little

Dr. Michelle O'Toole 27

The strategic control style lies in the middle

Dr. Michelle O'Toole 28

Cultural systems aim to standardise norms of

Performance targets focus on the outputs of an

Dr. Michelle O'Toole 30

This approach is appropriate:

• Inappropriate measures – choosing things

Dr. Michelle O'Toole 32

Balanced scorecards set performance targets

Dr. Michelle O'Toole 33

Dr. Michelle O'Toole 34

Dr. Michelle O'Toole 35

• Successful organising means responding to the key

Dr. Michelle O'Toole 36

Dr. Michelle O'Toole 37

Balanced scorecards set performance

Dr. Michelle O'Toole 38

• What you measure is what you get

• A framework for translating the aims and objectives of a business

• Popularised by Robert Kaplan and David Norton (The Balanced Scorecard,

Dr. Michelle O'Toole 39

• An organisation’s strategy should be

Dr. Michelle O'Toole 40

How should we How should we

What How can we

Dr. Michelle O'Toole 41

Dr. Michelle O'Toole 42

Dr. Michelle O'Toole 43

Learning Invest in staff training

Customer Increased customer satisfaction

Financial Increased sales and profit