Vol. 31, No.

2 McLean Reviews KAPLAN & NORTON

Review:
Alignment: Using the Balanced Scorecard to
Create Corporate Synergies
by Robert S. Kaplan and David P. Norton, 2006,
(Harvard Business School Press) hardback, 302 pages.
ISBN 1591396905

M ovie sequels are rarely as good as the original. So it is with Alignment by

Robert Kaplan and David Norton, the fourth book in a series that started with
The Balanced Scorecard a decade ago. The authors position the series as ‘the
foundation for a new science of strategy management.’ This claim has to be based
on the enormous success and popularity of their The Balanced Scorecard and
Strategy Maps among businessmen and women. I have great difficulty seeing the
contributions as ‘a new science of strategy management.’
Alignment is a great title for a book. The reason is that alignment of strategy
with organization and management processes is important but hard to do.
Alignment isn’t a new issue. The McKinsey 7S model in 1982 argued the need for
alignment of strategy with structure, systems, staff, style (culture), skills, and
shared values (Peters & Waterman 1982). When one sees an organization that is
dysfunctional and underperforming, the lack of alignment is readily apparent. For
example, when the computer industry changed in the early 1980s, IBM had an
enormous challenge of alignment, away from the mainframe business model to
software and services. This was a challenge taken on by a new outside CEO with a
remit to change virtually every aspect of how the company operated. Observing a
lack of alignment is only the first step in the process. How one obtains alignment is
another matter.
The alignment strategy and process outlined in the book is comprehensive. It
involves ‘wiring up’ the multi-business company by developing strategy maps and
balanced scorecards for each and everything—from corporate office to corporate
support, corporate office to business units, business units to support, customers,
and suppliers. The book provides a rich set of examples of organizations with the
visual display of themes and initiatives. Readers of The Balanced Scorecard and
Strategy Maps will be familiar with the displays. The case studies are interesting
and varied. They range from the US Army and the Royal Canadian Mounted Police
to IBM Learning, Ingersoll Rand, and DuPont. As a communication device the
alignment process will find its way into management meetings and strategy reviews

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AUSTRALIAN JOURNAL OF MANAGEMENT December 2006

to link initiatives with financial, customer, internal and learning and growth
objectives.
Kaplan and Norton rightly describe the multi-business corporation challenge
as being ‘how to operate multiple units within the structure to create value beyond
what individual units could achieve on their own.’ This is the familiar notion from
corporate strategy and finance texts that the whole needs to be greater than the sum
of the parts. The question I raise on reading Alignment is whether the book’s
proposals, to ‘wire up’ the processes, is the best way to get alignment with
direction and create value. For it to be a preferred path, one has to ask whether the
process proposed is superior to other approaches in terms of cost and benefits, and
whether it really gets to the difficult issues of strategy implementation.
Wiring up management processes has few supporters these days. The
abandonment of cumbersome strategic planning processes has been a relief to
managers and a regret to only a few strategic planners. The complexity of large
multi-business corporations and their geographic diversity have led companies to
go down a different path, seeking simpler approaches around strategic priorities,
emphasizing organization adaptation to change and adopting performance
management and rewards that are aligned with desired outcomes and behaviours.
The authors of Alignment touch on KKR, the private equity firm, in discussing
conglomerates. The magic of private equity, as practiced by successful private
equity firms such as KKR, is their success in alignment using very simple means.
They are ‘active owners,’ with a governance system set up to make decisions
quickly in the interests of shareholders. They have a focus on cashflow as the
financial objective. They offer super-charged incentives for the management team,
and replace managers quickly who don’t meet performance expectations. The
‘management system’ of private equity firms is simple and low-cost, but at the
same time has demonstrated that it can handle the complexity of large businesses
and multiple businesses in a portfolio. The simplicity and results are leading many
practicing managers to emulate the private equity model for alignment in the public
company ownership environment.
For those companies that are in public ownership the route to alignment is
increasingly through what McKinsey calls ‘strong performance cultures.’ The
interventions are typically around finance, customers, and people. With finance, it
is usually rigorous adoption of ROI benchmarks in capital allocation and
divestment, a hallmark of Wesfarmers’ successful multi-business strategy. Richard
Rumelt of UCLA has done some research recently on capital allocation in multi-
business companies with Dan Lovallo of the AGSM and UWA (Lovallo & Rumelt
2006). The surprising conclusion of their work is that multi-business companies
have almost double the proportion of their assets in businesses that don’t generate
returns to cover their cost of capital, compared to single business firms. As Rumelt
said recently when visiting the AGSM, ‘they have difficulty weeding the garden’.
Not so for companies with strong performance cultures. When it comes to
customers, it is the notion of customer referral as the acid test of customer loyalty
and retention, exemplified by the responses to the question: ‘would you
recommend this product/service to a friend?’ With people, it is employee
satisfaction and the actions it takes to change this. For example, ANZ Banking
Group’s breakout program to change mindsets and behaviours saw employee

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Vol. 31, No. 2 McLean Reviews KAPLAN & NORTON

satisfaction increase from 50% in 2000 to 85% in 2004. In ANZ’s case it took an
enormous investment in time and effort to get the alignment (ANZ 2005).
Alignment is likely to remain a topic of great interest to businessmen and
women. The book by Kaplan and Norton raises an important issue. It comes at a
time when businesses are eschewing complexity for simplicity. This is not the ‘new
science of strategy management’ but a visually appealing and logical setting out of
relationships in a business.

References
Australia & New Zealand Banking Group Limited, ANZ: Annual Report 2005, Melbourne.
http://www.anz.com/aus/shares/finance/annual.asp
Kaplan, R.S. & Norton, D.P. 1996, The Balanced Scorecard: Translating Strategy into Action,
Harvard Business School Press, Harvard.
Kaplan, R.S. & Norton, D.P. 2004, Strategy Maps: Converting Intangible Assets into Tangible
Outcomes, Harvard Business School Press, Harvard.
Lovallo, D. & Rumelt, R. 2006, ‘New perspectives on internal capital allocations’, working paper
presentation, presented at UWA, Perth, in October 2006 October.
Peters, T.J. & Waterman, R.H. 1982, In Search Of Excellence, Harper & Row, New York.

Rob McLean
former Dean
Australian Graduate School of Management

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