(I write of Haiti and U.S. politics together only to illustrate a point, and not to imply any comparison between these events. I hope that you will join me and millions of others who have already contributed to one of the many organizations leading Haiti’s earthquake relief efforts.)

In my experience, organizational preparedness for major, unexpected changes varies widely. Most organizations pay lip service, with little more than rueful acknowledgement of the possibility of disruption. Some develop ‘business continuity’ plans, which are targeted at sustaining key assets and processes, like computer systems and networks, in the event of catastrophe. Far fewer have a comprehensive, robust capability to weather the literal and figurative storms of unknown and unexpected events. The most effective organizations prepare not for specific disasters, but with a well-tested process for making effective strategic and tactical decisions in the face of sudden, significant, unexpected change.

Every organization’s strategy is the result of its mission, its internal capabilities, and its external environment. Over time, mission and capability are likely to evolve to reflect the changing realities of the external environment. The normal strategic planning process, when properly executed, entails continuous monitoring of environment and management of capability and strategy itself. Sudden change in the external environment requires rapid and confident recalibration of the strategy. The decision making process is the same, only the time scale is different.

The difficulty with which most organizations mange and execute strategy means that they are ill-equipped to handle the inevitable lurches. Fingers are pointed, emotions flare, poor decisions are made, and must be made again, efforts are wasted, and chaos reigns. By contrast, healthy organizations quickly pick themselves up, look around to understand the new realities, quickly make well-informed decisions, and get on with the urgent tasks at hand.

How will your organization handle the next lurch?

I am a big fan of public radio

This week, Mike Miner wrote about WBEZ and the new “Chicago Public Media” strategic plan. It’s a plan that charts our direction for the next few years. Torey, staff and the board have been working on the plan since March 2008. It got leaked to the Chicago Reader and subsequently picked apart. So I thought I would ask Daniel Ash, our VP of Strategic Communications, to set the record straight.

Our strategic plan is a work in progress. Most staff and board members have participated in at least one meeting since March 2008. I’m one of the lucky ones, having participated in at least five discussions. In each meeting the discussion was wrapped around this question: How do we continue to accomplish our public service mission? The good news is that lunch was usually provided.

I did not plan to release this plan this way, but since it’s been posted without permission on another site I figure why not ask you directly what you think. Warning: when you put creative people in a room and ask them to imagine the future, you get BIG—sometimes wild—ideas. Hint: we’re still working on the practical translation of what we’re actually going to do over the next three years.

Here’s the deal: if Chicago Public Radio is not relevant to our audience—our community—we’re not doing the right thing. This document provides a broad framework for us to ask even more questions about what we’ll do and how we’ll do it. If you’ve got a moment, please read it and tell us what you think. This is just the beginning.

And without any more stalling, here’s the Strategic Plan 2010-2013.

If you choose not to read the horror story that is their plan document, I’ll give you my quick take: if the consulting firm that produced it could be held liable for professional malpractice, the plan document and the process that created it would be strong evidence in support of a claim. If nothing else, you should look to this example as a reminder of what not to do in your organization’s strategic planning process.

The most obvious problem with the plan is its authorship. Despite the fact that it carries the logo of a legitimate consulting firm, the plan’s content is seen as coming only from the WBEZ’s president. According to Miner’s research (emphasis added):

The new plan claims that this mission was arrived at by “strategic consensus.” But my soundings of people within or close to the organization suggest that the plan is generally regarded as an expression of the will, vision, and rhetorical flourishes of its president, Torey Malatia. Though the plan is written in the third-person plural, there are occasional lapses into ‘I’ and ‘my.’

The role of a strategic planning consultant is to expertly guide the process, and protect the interests of the organization, not to simply echo the will of its leader. What value did the consulting firm add to this process?

There is strong evidence that the process that WBEZ used to get to this point is flawed. As noted in the blog post, WBEZ has been working for over 18 months on the plan so far, and participation in the process by even the director of strategic communication has been spotty: “Most staff and board members have participated in at least one meeting since March 2008. I’m one of the lucky ones, having participated in at least five discussions.” So exactly who has been part of the process?

With most staff and board members having participated in ‘at least’ one meeting, is there any continuity, or executive commitment to the process? Even the most challenged organization I’ve worked with is able to agree to an enterprise wide strategy map within the first two months of focused effort. The fifteen page document, produced at an average rate of less than one page per month, fails to identify and clarify the strategy in actionable terms. As stated in the blog post: “Hint: we’re still working on the practical translation of what we’re actually going to do over the next three years.”This is a candid admission of the failure of WBEZ’s planning process.

Leaking the self-described “work in progress” to the public was no less than an act of organizational insurrection. The innocent sounding invitation to “tell us what you think” is an open invitation to discredit both the content and the process that has been used. There is little evidence of an understanding of how stakeholders value WBEZ, and their judgement of this weak, amateurish effort will be swift and sure.

The New Yorker piece begins with a recollection of the news item from a few weeks ago, in which two Northwest Airlines pilots overshot their destination (Minneapolis) by over a hundred miles (the pilots claim they were engrossed in a complex work scheduling program on their laptop computers), then goes on to comment on the effect of multi-tasking on our performance. According to Paumgarten:

Studies have shown that multitasking, even of the law-abiding kind, doesn’t work. You just perform each task less efficiently. Marshall McLuhan predicted that technology would sharpen our senses, but, instead, as the writer Michael Bugeja said last week, it seems to split them. (A few years ago, Bugeja, with a colleague, started writing an article called “Media Saturation Kills,” but he got distracted by another deadline and never finished it.)

I first became familiar with the concept of multitasking many years ago when I started working with mainframe computers. Learning about the operating system, I came to understand that while it appeared that these giant computers were working on many things at once, in reality they could only work on one thing at a time. Much of the inner workings of the hardware and operating system was devoted to handling interruptions; quickly saving the status of the interrupted task so that work could shift to the next task in line. When there were too many tasks, the computer would spend more of its time switching between tasks than actually doing useful work, and progress would grind to a halt. Computer architecture has evolved, and some computers can actually do more than one thing in any given instant, but there is still a lot of suspending and switching going on. But enough about computers.

Human organizations, by their very nature, work on more than one thing at a time. Creating value is complicated business, and each individual’s contribution to value creation must somehow be coordinated by the organization itself. But like the pilot with his laptop, or the distracted driver texting on a smartphone, there are dangerous adverse consequences to trying to do too much. There seems to be a natural tendency for organizations to take on a larger change agenda than their capacity to accomplish them; and only deliberate intervention can reduce the agenda to manageable size.

Most of my clients easily admit to having too much going on at once, and no good way to prioritize what must be done. The sign of a healthy strategic management process is an understanding of the organization’s capacity for change, and careful management of the agenda within that constraint.

How many things are you working on right now? How many things is your organization trying to accomplish?

Outcomes at PrimeCorp

As a result of the risk-adjusted forecasts, both the baseline and with leadership expectation of the impact of the proposed strategic management system, PrimeCorp had satisfactorily completed its cost-benefit analysis and projected payback. Curtis (PrimeCorp’s CEO) soon thereafter approved the project as proposed, and our work was underway. Working closely with Jim (PrimeCorp’s head of strategic planning), we undertook to transform the way in which PrimeCorp managed its strategy. The transformation took about two years.

During the first year, we used the discipline of balanced scorecard strategy maps and measuresto capture and refine a vision of strategy for the PrimeCorp enterprise, as well as its several divisions. The process revealed cultural tensions; resistance to change (even though no one on the management team really liked the existing strategic management process), and tension between corporate-level governance and a tradition of division-level autonomy. Both in one-on-one discussions and leadership meetings, the appropriate role of the corporation was portrayed variously as simply that of a holding company and a bank providing capital, to a necessary facilitator of innovation, synergy, and simple scale economies between division accustomed to operating with limited oversight. While neither extreme was realized, there was a perceptible shift towards more robust corporate governance, with integrated strategic planning and financial forecasting at its core.

Our comprehensive program of strategy communication brought the message of strategy and personal participation in execution to hundreds of middle-level managers across the organization; a population to whom the content of corporate and divisional strategy had previously been opaque.

While our effort to justify the initial investment introduced the dimension of risk into financial forecasting, the idea of risk did not become part of the everyday vocabulary of forecasting. Our mandate was to transform strategic planning; budgeting and forecasting was outside of our scope. Exposure to the idea of risk management was simply not enough motivation to re-design PrimeCorp’s tradition financial forecasting.

Over the following years, the improvement in PrimeCorp’s financial performance well exceeded even the most liberal of the scenarios used to justify the effort in the first place.It wasn’t our work that created the improvement; it was the tenacious effort of hundreds of executives, senior and middle managers, front-line supervisors and employees; armed with a clear vision of PrimeCorp’s strategy that made it happen.

The Offer to You

I have developed a spreadsheet-based model of the risk-adjusted forecast approach to share with you, in the hope that you too will make a better business case for enhanced strategic management. As promised in the first post, the first five people to send a note to me describing your situation at info@tenacioustortoise.com will receive a copy of the tool, and an hour of guidance in its use by telephone at no charge. I am looking forward to hearing from you.

Needless to say, this series of posts has been much lengthier and detailed than most posts here. Was this useful? Too much? I need your feedback. Please offer your questions and comments below.

Putting the Model to Work

The first revelation of PrimeCorp’s risk-adjusted forecast was that it was lower than the original forecast.

To illustrate how this happened, imagine forecasting your personal income for next year. Let’s say that your salary is X dollars per year, so that is your original forecast. But with a risk-adjusted view of your future earnings, you might also acknowledge a 15% chance of getting a bonus equal to 10% of your salary, and you might also acknowledge a 20% chance of losing your job and not finding another one for the rest of the year. So 15% of the time your expected income would be X / 2 (this reflects an assumption that you have an equal chance of losing your job on any day of the year, in which case your expected income would be the same as losing your job halfway through the year). 60% of the time your income would simply be X, and 25% of the time your income would be 1.1 * X.

By combining these possible outcomes with their odds of taking place, we get:

( .15 * 1.1 * X) + ( .65 * X) + (.20 * .5 * X) = .915 * X

In other words, the risk-adjusted forecast for your income is 91.5% of your salary.  

In capturing the characteristics of ‘below plan’ and above plan years at PrimeCorp, we learned that given an equal chance of each, there was more downside potential in the ‘below plan’ years than upside potential in the ‘above plan’ years. As a result, their risk-adjusted forecast was below the original forecast. This was a bit of a revelation to PrimeCorp’s leadership team.

Changing the Odds

To then forecast the prospective impact of a strategy management program, we asked PrimeCorp’s leaders to adjust the odds of having a ‘below’ ‘above’, and ‘as planned’ year given successful execution of their strategy. The responses ranged from no or very modest impact from the skeptics, to a cautiously larger impact from those who supported the idea of implementing our proposed strategic management process.

After some discussion, their sense of the impact was consolidated into three scenarios:

• ‘Low’ impact, with a small avoidance of the ‘below plan’ outcome, the same odds of an ‘as planned’ outcome, and no improvement in the likelihood of the ‘above plan’ outcome, with respective odds of 20%, 55%, and 25%;
• ‘Moderate’ impact, shifting the curve, with respective odds of 20%, 49%, and 31%;
• ‘Improved’ impact, with respective odds of 15%, 55%, and 30%.

Running the model with PrimeCorp’s own expectations yielded definitive results. Even under the most conservative scenario, the investment in the strategic management system would be paid back in under three years. And the forecast was based entirely on inputs from PrimeCorp.

Next: Outcomes at PrimeCorp, and the case summary.

The Different Approach

We already knew that a key element of PrimeCorp’s existing strategic planning process was its financial forecasts. The annual planning book (hundreds of pages, highly confidential, and not shared beyond the executive team), contained page after page of spreadsheets describing past and expected future performance of each of PrimeCorp’s several divisions, as well as an enterprise-wide roll-up of the numbers. The executive team, which consisted of the heads of each division (as well as such corporate functions as HR Finance, and IT) annually created their individual division forecasts as a function of past performance, and their own expectations of the next five years of future results. This process was time-consuming and filled with understandable tension – between division leaders’ desire to soft-peddle the numbers, and CEO and board pressure to raise revenue and manage costs to achieve year-over-year improvement in profitability.

What was evident in the forecast numbers was their inability to capture the uncertainty in establishing them. This was our opening to capture the value of our improving PrimeCorp’s strategic planning process. From Part I, you’ll recall that I challenged Curtis and Jim to pay us $25,000 for a couple of weeks of effort to make the case for our proposal. I said, “Instead of just looking at your forecasts as a set of fixed numbers, we’ll consider the likelihood of the forecasts playing out. Our firm won’t introduce any numbers into the calculation – we’ll just use your and your team’s own expectations.” Curtis accepted the approach, and on a handshake, we got started that day.

Choosing the Levers

Like any business, PrimeCorp’s profitability is the result of inputs. Looking at the forecasts, it became clear that for each division, profit was the result of revenue, cost of goods sold, operating expense, and the cost of invested capital. To improve profit, a division had to accomplish some combination of increasing revenue, managing the cost of inputs and transforming them to outputs (the cost of goods sold, or COGS), manage its overhead costs (such as corporate overhead and IT), or reduce the cost of invested capital (primarily in each division’s necessary and sizable inventory). Of course, each of these four inputs were themselves the result of a multitude of contributing factors. But to manage complexity, we chose only these four inputs for each division as the appropriate level of detail for the exercise.

Capturing Uncertainty

Having both forecast and actual results for each division in several prior years, it was easy to judge the quality of PrimeCorp’s forecasting process. Revenue and capital cost were easier to forecast than COGS and operating expense, and variation in all resulted in years with significant over- and under-performance to the forecast, as well as years near forecast. There was no apparent bias in the forecasts; performance had been significantly above or below plan about the same number of times over the past ten years.

To quantify the uncertainty in the forecast for the next fiscal year, we imagined repeatedly ‘rolling the dice’ on the outcomes of the upcoming year. Sometimes the outcomes would be below the forecast, sometimes above. Ranking all of these hypothetical outcomes from poorest to best, we could then put these outcomes in three buckets; the bucket for the poorest 25% of them would be called ‘below plan,’ the middle 50% of them would be in a bucket called ‘as planned,’ and bucket for the best 25% would be called ‘above plan.’ Note that this was not an exercise in predicting the likelihood of any of these outcomes – by fixing the probabilities for each bucket, we could then ask a different pair of questions, “how bad would a ‘below plan’ year look, and how good would an ‘above plan’ year look? We assigned the original forecast values of revenue, COGS, operating and capital costs to the ‘as planned’ scenario. The first key input to the model were answers to the question, “what would the four inputs look like in the ‘below’ and ‘above’ plan year scenarios?”

To capture these inputs, my hope was to interview each division head and capture their own expectations for next year. But Curtis was less comfortable with the subjectivity of that approach, and instead we turned to past history. By comparing the forecast vs. actual outcomes for the four inputs in each of the last ten years of history, we could come up with reasonable estimates of the inputs parameters for the ‘above’ and ‘below’ scenarios (for those with statistics backgrounds: we actually determined the standard deviation for each of the four inputs, and used the forecast plus or minus one standard deviation for the parameters). Historically, above plan years happened when revenue increased and costs, especially operating costs, were held in check. Below plan years were more likely to be the result of higher COGS, not significantly reduced revenue. Although the likelihood of a below and above plan year were equal in the model, we learned that above plan years were only modestly above plan, while below plan years could be significantly below plan.

Rolling Up to a Revelation

Pulling all the input parameters together made it possible to create a risk-adjusted forecast for the upcoming year (and years beyond). The first revelation was that the risk-adjusted forecast was lower than the original forecast.

Next: Putting the Model to Work

A few years ago, I was faced with a unprecedented challenge by a client, to attach a dollar value to the benefit of a proposed consulting engagement. The details of the organization are not important to the concepts in the case, but suffice to say I was hungry for the opportunity to consult to this large organization.

A Bit More Background

The organization in question was (and still is) a large, for-profit business with a national presence across the U.S. (let’s call it PrimeCorp), and a decades-long track record as either the largest or second largest player among the few occupying a unique industry niche. Two of my colleagues had been engaged in attempting to sell PrimeCorp on the idea of revising and enhancing its strategic planning process, a process that would take at least two years of design, facilitation, and coaching on our part. Our firm was up to the task we were proposing, but my two colleagues hadn’t yet made the case.

Competing with a few other consulting firms, we had successfully qualified ourselves as PrimeCorp’s preferred consultant. Jim, PrimeCorp’s head of strategic planning, was familiar with our firm and our approach, and had invested much of his energy in paving the way for us. But Jim couldn’t award us the work – the decision lay exclusively with Curtis, the firm’s forceful and charismatic CEO. And he wasn’t buying, yet. The question wasn’t whether we would do the work – it was whether PrimeCorp would make the investment at all.

The Fly in the Ointment

Curtis was secure in his position as CEO, having occupied the job for many years prior to our arrival. He had close ties to members of PrimeCorp’s board, and the loyal support of his executive team. But his firm was suffering from declining profitability, relatively flat sales, and an emerging threat of technology-based competition from outside the industry. Curtis was frustrated with PrimeCorp’s lack of strategic clarity, and poor track record of executing on past strategic intent. With margins becoming thinner, PrimeCorp’s overall management style was a continuation of its long history of risk-aversion.

Determined to better manage rising costs, Curtis had recently imposed a rigorous capital planning discipline on his executive team. All requested capital investments over a low threshold would require sponsors to submit a comprehensive cost-benefit analysis, including projected payback periods. The CBAs would go to PrimeCorp’s board of directors for approval. No CBA, no investment. Since Curtis himself would by necessity be the sponsor of the proposed revamp of strategic planning, he wasn’t about to make an exception for himself from his own policy. So  Jim’s challenge to us was to help him and Curtis make the case for the investment. My colleagues tried to present anecdotal evidence of the benefits of improved strategic planning in other organizations, but Curtis and Jim weren’t convinced. To them, our anecdotes were just marketing hype.

A Different Approach

I had joined the PrimeCorp team quite late in the process, when it appeared that we wouldn’t be winning the business. My task was to scour our firm’s scant data on past client performance, and develop a more compelling set of data describing the benefits they had received. But there simply wasn’t enough data, and what little there was couldn’t be assembled into anything convincing. After some head-scratching, I came up with a different approach. But I needed to pitch it directly to Jim and Curtis. With little to lose, we scheduled the meeting.

Our Challenge to PrimeCorp

Jim and Curtis really wanted to do the work, but needed proof. In what could have been our final presentation at PrimeCorp, I apologized to Curtis for our failure to make the case. “Let’s approach this differently. Instead of using other companies’ data, we’ll only use PrimeCorp’s. Give us two weeks, complete access to both your existing strategic planning documents and your executive team, and $25,000 (for our time), and we’ll make the case.If we’re successful, we’ll credit you the $25k against our overall proposal. If we’re not, we’ll part company.” So PrimeCorp’s downside risk was only $25,000. Curtis was intrigued. “Tell me more,” he said.

Next: The Different Approach

We have all grown up in an era in which computing technology has had an increasing influence on the way we think about pretty much everything. In my first year of high school, slide rules were required for those taking physics classes. By the time I took the physics class (in my senior year), we were able to instead share the one calculator the school had bought for each classroom in the physics department. I suspect that some of today’s technologies will someday be as outdated as slide rules are today. If you don’t even know what a slide rule is, don’t worry (but you can read more about it here).

One of the ways in which we’ve been influenced is our tendency to represent uncertainty as single numbers. If you’re filling out a form in which you’re asked to estimate your household income for next year, you likely wouldn’t be able to enter anything but a single number. But a single number simply can’t capture any of the uncertainty of the estimate. To try to help most people understand even the most basic concepts of statistics is an extreme challenge. One cell in a spreadsheet only holds one number.

If you don't know what this is, don't worry.

The concepts of “uncertainty” and “risk” are so poorly understood in organizational settings that they may even be used interchangably. As a result, conversations about risk are difficult, because people understand the concept of risk in different ways. As I hope to cover in the coming weeks and months, one of our biggest challenges today is to introduce the concepts of risk and uncertainty into the strategic planning process. But thanks to Professor Savage, we can enhance our understanding with some plain language examples.

Uncertainty is simply the state of not being able to know an outcome. We don’t know for certain about the outcome of a coin flip, a dice roll, or tomorrow’s stock market performance. By contrast, risk is the probability of a loss or injury.

Suppose I offer you either $100 or nothing based only on the outcome of an uncertain event, a coin flip. Heads, you win, tails you get nothing. But I also offer you a choice; to skip the coin toss in exchange for a guaranteed $30. What would you do?

Of course, the average result of the coin flip is $50, but we’re only going to flip the coin once. So this average outcome (the expected value for those with a statistics background) is a bit of a red herring here. If you’re poor and looking for your next meal, you’d probably take the sure $30. But you might otherwise be willing to accept the risk of getting nothing in exchange for the possibility of $100.

Now imagine the same offer, but instead, the offer is $1 million riding on the coin flip, with an alternative of a sure $300,000. I suspect that you would take the sure $300,000. Unless you’re as wealthy as Bill Gates.

Uncertainty is unavoidable – it is a feature of the universe we live in. No one knows how the coin will flip. Risk is in the eye of the beholder, and a reflection of the impact of the loss or injury to an individual or group. Giving up a sure $300,000 in exchange for an uncertain outcome means something different to you or me than to Bill Gates. Our attitudes towards risk (utility, if you’ve taken the economics class) is different.

Every assumption and decision that goes into the strategic planning process has a degree of uncertainty, and (typically) a level of risk that is poorly understood. By improving our understanding of risk and our attitude toward risk, we can improve the quality and outcome of our strategic decisions. More to come.

One such word I find myself using often in my writings here is deliberate. Both its verb and adjective meanings (which are sometimes pronounced differently) powerfully apply to our interest in strategy, change, and organizational leadership. Let’s take a closer look.

Main Entry: ¹de·lib·er·ate

Pronunciation: \di-ˈli-bə-ˌrāt\

Function: verb

Inflected Form(s): de·lib·er·at·ed; de·lib·er·at·ing

Date: 14th century

intransitive verb : to think about or discuss issues and decisions carefully

transitive verb : to think about deliberately and often with formal discussion before reaching a decision

synonyms see think

In other words, to deliberate, we formally discuss issues carefully before making a decision.

Main Entry: ²de·lib·er·ate

Pronunciation: \di-ˈli-bə-rət, -ˈlib-rət\

Function: adjective

Etymology: Middle English, from Latin deliberatus, past participle of deliberare to consider carefully, perhaps alteration of *delibrare, from de- + libra scale, pound

Date: 15th century

1 : characterized by or resulting from careful and thorough consideration <a deliberate decision>
2 : characterized by awareness of the consequences <deliberate falsehood>
3 : slow, unhurried, and steady as though allowing time for decision on each individual action involved <a deliberate pace>

synonyms see voluntary

In other words, decisions are deliberate when they result from slow, unhurried, steady, careful, and thorough consideration.

When becoming familiar with a new client, I like to find out about recent decisions that have been most influential to the people in the organization, and to its direction as a whole. Capturing and deconstructing the history of key decisions reveals much about the culture and leadership style of the organization. Some leaders exercise power autonomously, and express their own beliefs and judgments through decisions made without apparent deliberation. These leaders may reveal these decisions in the context of discussions intended to give the appearance of deliberation, but participants may describe the decision as having been a “done deal” well before their input was sought. Autocratic leadership has the benefit of efficiency, but amplify the risk of wrong decisions.

By contrast, other organizations are painfully slow at making decisions. Without prompting, one of my clients described her organization as having “analysis paralysis.” After working with another client for several months, I began to describe its decision-making process as “deliberative” – which was a gentle euphemism for excess discussion, and not a compliment. And yet another client prompted me to observe that “at XYZ, ‘yes’ is never yes, ‘no’ is never no, there are only endless degrees of ‘maybe’.” These organizations suffer from their inability to quickly recognize and act upon threat and opportunity.

As we continue to puzzle over the inability of most organizations to reliably execute strategy, it is important to examine how each one makes decisions. There is no one ‘right’ decision style, but it seems to me that the elusive and desirable approach would be one in which decisions are made carefully, as a result of efficient consideration by leaders and expert stakeholders working together, yet quickly enough to enable timely action. Decisions made carefully yet quickly are acted upon tenaciously, yet subject to careful scrutiny and a healthy skepticism that objectively separates the decision from the decision makers. Poor decisions are recognized thoughtfully and early, with timely corrective actions taken. These ideals, to me, are core definition of the deliberate organization.

How has your organization made its important decisions? Were good decisions made quickly and efficiently? Did leaders stand by decisions, or drift in a tide of uncertainty? Were poor decisions recognized and dealt with properly? Were risks understood and accepted? How would you define the deliberate organization?

On Wednesday and Thursday 7-8 October, I’ll be speaking at the American Strategic Management Institute’s Performance conference in Chicago.

For more details, please click here, or go to the Events link above.

The ‘balance’ in balanced scorecard refers to the ideal of providing leaders with a balanced portfolio of lagging and leading performance indicators. Leading indicators are valuable because they help managers form an expectation of what will happen, and enable testing of the cause-and-effect hypotheses that are at the core of the strategic planning process. But identifying candidate leading indicators and selecting from among them requires careful consideration and a healthy skepticism of apparently easy answers.

But this careful consideration requires familiarity with the concept of causation. Having just pulled down my trusty copy of The Practice of Social Research – a textbook from an undergrad class I took too many years ago, I was daunted by the prospect of condensing a lengthy entire chapter on the nature of causation to offer a brief understanding here. Wikipedia’s definition is far more concise:

Causation: The belief that events occur in predictable ways and that one event leads to another. If the relationship between the variables is non-spurious (there is not a third variable causing the effect), the temporal order is in line (cause before effect), and the study is longitudinal, it may be deduced that it is a causal relationship.

When working with executives, I find real-world examples to be especially useful. One of my favorites offers a measurement of housing starts (a statistic produced monthly by the U.S. Census Bureau) as a leading indicator of the sales of so-called “white goods” (a wonderful old term meaning major appliances, like refrigerators, washing machines, stoves, etc.). An uptick in housing starts is an extremely reliable leading indicator of a nearly identical uptick in sales of white goods several months later. As those new housing units near completion they are furnished with new appliances. So if you’re in the business of making refrigerators, you’re going to be very interested in tracking housing starts.

Unfortunately, causation isn’t usually that obvious. One client of mine (some details have been changed) operated an inbound call center for taking resort hotel reservations. As part of a broad strategy, this firm undertook an initiative to increase revenue by cross-selling reservations for nearby dining and attractions, along with the core hotel reservations. Call-center agents whose performance had previously been measured as calls handled per hour were now expected to engage callers in more personal conversations about their vacation plans, in order to find opportunities to cross-sell the associated reservations. The new performance measures became average call duration (the hypothetical leading indicator that was expected to increase) and average revenue per call (the lagging indicator). The strategic hypothesis: keep customers on the phone longer, and they’ll buy (reserve) more.

It didn’t work out that way. Even though the call-center agents had been trained extensively in cross-selling, the majority of customers calling in were not easily engaged in the longer, more personal conversations. These customers called expecting a brief transaction (the hotel reservation) and were impatient with the questions. But a subset of customers calling in were quite happy to chat with the friendly reservations agents. Unfortunately, these chatty customers turned out to be especially unlikely to make dining and attraction reservations, and ultimately reduced the productivity of the agents.

A continuing theme in my posts has been that of strategy as a set of hypotheses to be tested. A tested hypothesis proven to be false is just as valuable as one proven true. Measure such as those in the example above enabled managers to quickly identify flaws in the hypothesis, and revise the strategy. The value of a measure is in its ability to enable valuable decisions.

Do you have a favorite example of a pair of leading / lagging indicators that you can share? Please comment below.

A crucial step in driving alignment with strategy after the strategy itself has been established is to capture the activities (projects, initiatives, call them what you will) that are already underway. A matrix of the strategic initiatives against the strategic objectives almost always reveals opportunities to improve alignment; initiatives that don’t map well to objectives, objectives with no initiatives, and in some cases, objectives with too many initiatives.

Unfortunately, many organizations struggle to even create the alignment matrix. With neither a centralized project management office (PMO) to capture and track the status of discretionary activity, nor any understanding of the labor actually being allocated to each initiative, leaders have little more than capital and expense budgets as a weak indicator of actual strategic initiative activity.Discretionary projects often have significant labor expense, but little or no capital budget. Labor is treated as a sunk cost that is allocated to business units and departments on the basis of full-time equivalent employees (FTEs), not to specific projects and initiatives. Middle managers have discretion to undertake operational improvement projects and strategic initiatives with limited senior level oversight beyond the capital budget process.

Managerial discretion is biased towards operational improvements, which tend to have more tangible benefits delivered sooner than strategic initiatives whose benefits are less tangible in the near term. The pool of labor available for discretionary efforts is the difference between total labor available, and the necessary effort to run the business everyday. Keeping the lights on always takes precedence. Whatever is left over is given over to discretionary activity, divided between operational improvement and strategic initiatives. It is generally the same people whose time can be allocated to each.

Large organizations become especially adept at optimizing the status quo; making current business processes as efficient as possible. Strategic change represents the unknown, and a greater risk of an individual manager being seen as mis-allocating his or her labor resources. So in the aggregate, little labor is left to devote to strategic change.

A more enlightened approach requires a comprehensive understanding of discretionary activity across the enterprise, captured and administered by a robust PMO function.Workforce time reporting enables executives to understand not just what projects are underway, but to manage the set of projects as an investment portfolio. When viewed this way, executives are able to reduce the total number of projects (many of which may consume resources with little progress to show for it), better balance FTEs between strategic and operational change, and drive a higher share of projects to deliver their intended value on time and on budget. In the absence of this more enlightened approach, it comes as no surprise when there is a failure to execute strategy.

Anderson offers an initially breezy, but eventually somewhat tedious journey through the concept of free. Even the word itself (which I swear must appear an average of ten times on each page) has to be parsed – free as in “freedom” and free as in “at no cost.” To ensure our comprehensive understanding of the phenomena of free, Anderson journeys from history into behavioral science, literature (science fiction), and pop culture.

Much, but not all of the discussion of the contemporary concept of free is rooted in technology. When companies like Google give away so much of what they do (search, maps, mail, online applications, operating systems), and yet are so profitable, it is time to reexamine the relationship between price and profit. And it is examined in detail, indeed. Over a dozen sidebars sprinkled through the book offer brief case studies of businesses built on free models, and the ample back matter includes a list of fifty business models built on free.

At the center of technology-based free is the philosophical foundation found in Stuart Brand’s famous 1984 quote (emphasis added):

On the one hand, information wants to be expensive, because it’s so valuable. The right information in the right place just changes your life. On the other hand, information wants to be free, because the cost of getting it out is getting lower and lower all the time. So you have these two fighting against each other.

Of course, all that most people remember is, “…information wants to be free.” You’ll learn more than perhaps you want in the entire chapter devoted to parsing the quote. Anderson’s contention is that with dramatic declines in the cost of three commodities (storage, bandwidth, and processing), the marginal cost of delivering information is so close to zero that it might as well be free. But there is much, much more that we learn about free; far too much for me to coherently capture here.

It is hard for me to imagine any contemporary or future strategist who won’t someday become caught up in the reality of the radical pricing models that free entails. Recorded music and newspapers are but two of many industries today that are wrestling with technology-driven pricing upheavals. And perhaps that is the greatest value of the book, the message that “free is real, and it’s here to stay” for those who may still be dismissive of the idea. But that point (at least for me) was made easily and quickly. I finished reading Free both exhausted and hungry – exhausted at having been beaten over the head with the concept and Anderson’s taxonomy of different forms of free, and hungry for a better understanding of how to approach strategy development in organizations where free is both threat and opportunity. Now that we understand that free is real, perhaps we’ll invent a better way to make pricing decisions than we do today.

Is your organization coping with free? What is the impact? What is the opportunity? How is your leadership team responding? Please comment below.

The afterglow of the strategy map workshop didn’t last very long. Working closely with Linda, the next step was to recruit people in the WorldCo organization to identify prospective measures for the strategy map objectives. This process was designed to require minimal participation from leadership team members – the work was to be delegated deeper within the WorldcCo organization.

But even with this minimized commitment, we found it quite difficult to reach the eight members of Reggie’s leadership team – not only were they traveling, but they often simply didn’t respond to e-mails and phone calls. When we approached likely persons to become involved in measurement, they were unable to help without the approval of their managers (the members of the leadership team). Without any apparent cause, we had lost our momentum.

During our brief status meeting with Reggie a couple of weeks later, Linda and I (Karen cancelled at the last minute) fully understood the extent of the climate change. Reggie’s engagement was simply gone. He listened to our updates with impatience; each concern was met with a crisp “Got it, move on.” We only got about fifteen minutes of the promised hour with him. He acknowledged our concerns, and said that he would look into it and let us know about our requested actions to get the program back on track.

We never met with Reggie again.

It was later uncovered that not long after the strategy map workshop, several members of Reggie’s leadership team had met, without Reggie or Karen’s knowledge, to discuss their concerns about the strategy management and change programs. As we understood it, the expressed concern was about how much people time the program would entail, and how the leaders simply didn’t see a way to clear enough of their people’s time to do the work properly. It was never clear whether Reggie was informed of this separate meeting, but in retrospect, his loss of engagement may have been a reflection of his disappointment in his people, or in his own lack of real power to change things in WorldCo.

In retrospect, I believe that the post-workshop pushback to the program arose from the leadership team’s realization that the program would result in objective, and public measures of their performance. Rather than rallying around the change agenda, the leadership team rallied around their fear of the program, and were easily able to orchestrate the campaign of benign indifference that was ultimately fatal to the change program. The sabotage that killed WorldCo’s change program, seems all too similar to the tactics now playing out in the healthcare reform debate that is dominating the U.S. today. I shudder to think.

Postscript

With little support from Karen, Linda made a valiant effort to keep the WorldCo strategy program alive, to no avail. Although she found some opportunity to drive more successful change programs elsewhere in WorldCo’s parent enterprise, Linda soon left the company, and is now an effective independent consultant in the field of strategy execution. Karen, for all of her limited involvement in the heat of the effort, actually accepted a number of public speaking engagements in which she spoke glowingly about WorldCo, her change program, and Reggie’s leadership. But Karen, too was gone from WorldCo within two years. Reggie, of course, was promoted to a senior role in WorldCo’s parent two years later. And Reggie’s change agenda at WorldCo has not yet been accomplished.

Does WorldCo resemble your organization? Have you ever worked for a Reggie? Did you enjoy reading a five-part case study? Do you have a case you’d like to share? Please comment below.

It would have been so easy for the workshop to have been awful. Forty-five executives and managers instead of the promised nine, many of whom had no advance understanding of what was going on. A not very cohesive leadership team, with at least some evidence of rivalry and political intrigue among them. Some open skepticism about the process (although this was typical), and an organization whose culture seemed to be all about impatience. And in me, a somewhat rattled facilitator.

And yet, it worked. During Reggie’s warm introduction of my colleague and me, he acknowledged that he had changed the rules on us by inviting so many people. He asked everyone in attendance to give us their full attention, and hoped that they would emerge from the day as excited about the work as he was. He said all the right things, and did so in a way that was both humble and energizing, and he electrified everyone in the room. I’ve rarely seen a leader so charismatic and so engaging. And he remained engaged all the way through the day.

The introductory material that comprised the kick-off meeting was received without much discussion, and it seemed as though most understood both our approach and the Reggie’s rationale for the program (remember that it was actually Karen’s idea to begin with). Any traces of skepticism were easily addressed, with Reggie’s backing. Karen and Linda were mostly silent – it was clearly Reggie’s show. As we got into the content of the strategy map itself, I suggested that we limit participation in the discussion to only the eight members of Reggie’s direct leadership team, and there was no resistance.

When leadership team interviews result in an aggressive change agenda, I tend to foster discussion about the ability of the organization to do everything at once; this is the concept of capacity for change I’ve written about earlier. But when the draft strategy map is timid (as was the case with WorldCo), I try to challenge the organization to reach for a more ambitious agenda. I had obtained Reggie’s blessing for this approach during our preview meeting. As we went through the strategic objectives one by one, I was able to guide the leadership team to strengthen the language, and to agree to stretch the WorldCo’s objectives enough to make the strategy into a real change program, rather than the perpetuation of the status quo I had feared. Reggie and his leaders were entirely on board, and everything flowed smoothly.

At the close of the meeting, we invited Reggie to get up and present the newly hatched strategy map, which he effectively did without skipping a beat. We identified performance advocates, and I briefly recapped the next steps in the process; identifying measures, collecting data, and reporting results, and communicating strategy across the entire WorldCo employee community. Reggie’s closing remarks were a ringing endorsement of the strategy map that his team had built (with our help), and he challenged everyone in the room to make the strategy a reality.

Next: Part V: Reality and reflection

Each of the many dozens of strategy map workshops I have facilitated in my career has been different, but they have all been exhilarating. For up to eight hours, I (and typically a colleague) guide a group of executives to construct and agree to a concise yet richly detailed expression of the strategy for the organization (read more about the art and science of strategy map design). With only a few exceptions, executives emerged from their efforts highly satisfied with the result of their efforts, and energized about strategy execution.

Over the years, my colleagues and I have developed an understanding of the ingredients for a successful strategy map session. All members of the leadership team in attendance, and fully engaged (e-mail and telephone calls only permitted on breaks, no laptops or PDAs allowed). No more than about fifteen people in the room. A carefully developed draft strategy map that has been previewed with the leader of the organization. The pacing of the discussions that enhance and revise the draft map must be carefully managed, and it is important to “read the room” to sense when it is time to seek closure on a discussion.

The unique challenge for the particular workshop at WorldCo was the fact that we also had to accomplish what normally would have taken place during a separate kick-off meeting. An overview of the rationale for implementing the strategic management system, a brief review of the concepts of balanced scorecard itself, and an understanding of the project calendar needed to be accomplished in less than 90 minutes if we were to have the time to accomplish the strategy map workshop in the same day. Kick-off meetings sometimes become a bit of a challenge themselves when team members are not fully bought-in to the idea of a strategic management system. Overcoming grumbling and skepticism can cause kick-off meetings to run a bit long, and for that reason alone, it is better to schedule them separately. In an organization where we had already learned that time was always scarce, and that the culture accepted the reality of executives double- and triple- booking their calendars, my biggest concern was not finishing the map in the allotted time. And if needed, it would take weeks to schedule a follow-up meeting. My colleague and I were a bit edgy.

Offsetting our concerns was two key benefits. With only Reggie and his eight direct reports, Linda, my colleague, and I would only be facilitating discussion among nine executives. The challenge of facilitation increases greatly with more executives in the room, and fifteen is about as many as had been facilitated successfully. And, our draft strategy map had been properly vetted with Reggie, and nothing on it was likely to be especially controversial. So we were in pretty good shape.

When we arrived to set up at the meeting room in a nearby hotel early that morning, I was dismayed to see a much larger room than expected set with around eight round tables and six chairs at each, instead of the small “U” -shaped table arrangement we had requested. Karen sheepishly explained that she had gotten a call from Reggie the day before (while I was airborne to WorldCo’s headquarters), suggesting that each of his direct reports invite a few of their direct reports to attend the workshop also. Apparently, Reggie was so pleased with the draft strategy map that he wanted to involve as many members of his extended management team as possible in our workshop. Not wanting to push back on what seemed (at least to Reggie) like a good idea, Karen agreed. So instead of facilitating a group of nine, we were set to facilitate a group of forty or more managers, many of whom had no prior knowledge of the program. Needless to say, I was upset and concerned, but with 40-plus people already beginning to arrive and mill around the lavish breakfast buffet, there wasn’t much that could be done.

Next: Part IV: Workshop and afterglow

As I requested, Linda accompanied me to each of the interviews, and was able to provide valuable context and insight into what was revealed. Some members of Reggie’s leadership team were enthusiastic, and well informed about the intent of the program, but at least a couple of them had no idea what was going on, and seemed especially impatient with our use of an hour of their time for the interview. All knew of the upcoming full-day kick-off and strategy map workshop, but some were clearly skeptical. Linda wasn’t surprised. She told me that Reggie rarely met with his team as a whole, and that each of those managers was operating fairly autonomously. There were also some mild rivalries among those team members. Reggie was seen by Linda and others as having a “hands-off” leadership style.

One prevailing theme I drew from the leadership team interviews was that Reggie’s was an organization that had a good track record of success. Few had anything but high praise for Reggie, who was seen as an effective leader with the smarts necessary to lead WorldCo. There was little recognition of a need for major change in the organization itself. But enough opportunities emerged for Linda and I to construct a credible, if somewhat un-ambitious draft strategy map. We reviewed the result with Karen, who was satisfied, and offered no revisions.

A few days later, Karen, Linda, and I met with Reggie, although our 90 minute meeting had been trimmed to an hour because of (no surprise now) a conflict on Reggie’s schedule. I learned soon after that it was typical for Reggie and his executive assistant to double- and even triple-book his calendar, and that we were fortunate to have gotten the full hour with him that we did. Reggie was focused and inquisitive as we presented the draft strategy map. This was a guy who understood things very quickly, and he was fully engaged in our discussion of the content of the map, and offered valuable suggestions. He expressed his complete satisfaction with our work, and said that he was looking forward to the strategy map workshop a few days later. We emerged smiling from our meeting with Reggie, with a renewed optimism for our effort. We were ready.

Next: Part III – Workshop day

Our firm was approached by Karen, the energetic and charismatic head of strategy for WorldCo, a major division of a large U.S. corporation whose name would be instantly recognizable to anyone reading this case. Her mission was to implement balanced scorecard in WorldCo as the basis for a strategic management system, and as a tool to drive an overarching strategic change program. She had proposed the idea and earned the blessing of the division head Reggie, an executive who appeared every so often in favorable interviews about leadership in business periodicals.

I visited the organization’s lavish headquarters, where I met Karen and her deputy, Linda. Karen, Linda, and I had good conversations about the intent of the program, and we agreed to the approach we would use, which was based on our standard methodology. I met Reggie, briefly, and was promised an in-depth conversation with him once we were underway. From our conversations, I developed a project plan and then the proposal itself for the work.

Six weeks later, and after several iterations of modifying the project plan with Linda and awaiting approvals from Karen and Reggie, we were finally ready to get started. The delays mostly had to do with the fact that Karen and Reggie traveled a great deal, and the difficulty in getting them to take the time to review our response to their requested changes. Their requests were couched by their contention that “things are different” at WorldCo, and mostly had to do with minimizing the time demands on Reggie and his eight direct reports. None of the requested changes were unreasonable, but the detail with which we had to develop the project plan was a bit more than most of our clients generally expected.

Linda was assigned by Karen as WorldCo’s full-time project manager for the effort, which was expected to take about six months. During that time, we would work with Reggie’s leadership team (his eight direct reports) to identify and capture WorldCo’s strategy in a balanced scorecard strategy map, develop performance measures, implement a reporting process for those measures, facilitate the first meeting to review those measures, and launch a strategy communication program inside WorldCo.

One of the requested changes in our approach was to combine the project kick-off meeting with the workshop in which we would actually develop the strategy map. The rationale for combining these meetings was around scheduling; because Reggie’s direct reports had very full travel schedules, it would take weeks to arrange for all of them to be in one place, and that window was most important for developing the strategy map.

In a standard approach, kick-off meetings are held primarily to ensure the support and participation of each member of the leadership team, and to provide all of them with an overview of the objectives and structure of balanced scorecard and the change program. I agreed to defer the kick-off meeting, but not without expressing some reservations. In response, I was assured that we would get the full day needed for the combined kick-off and strategy map meeting, and that Reggie would personally introduce and support our effort with each member of his team before we got started.

The most important step in developing a strategy map is to interview each member of the leadership team, separately, in order to develop an objective basis for a draft strategy map. I normally like to meet twice with the head of an organization; once briefly before the round of interviews to capture his or her vocabulary for change, and then afterwards in more depth to share the thrust of interview findings and test the hypotheses developed during the interviews. But unfortunately, because of a scheduling conflict, Reggie had to cancel our first meeting at the last minute.

Next: Interviews, and our meeting with Reggie

The normal view of strategy as a hypothesis is oriented to the organization itself; a set of assumptions about what the organization should do, and what will happen as a result. Leaders who are engaged in a strategic change program are properly concerned with monitoring those things that are (nominally) within their control; the actions of the enterprise and its constituent parts. Measurement systems, dashboards, and balanced scorecards convey in effective detail the intent of the strategy (through the selection of measures), and the extent to which the hypothesis is playing out (the actual value of the measures relative to established targets). This is all well and good. But it is a disturbingly short sighted view of strategy.

Classic SWOT analysis teaches us that in order to formulate strategy, an organization must understand its internal Strengths and Weaknesses as well as the Opportunities and Threats in its external environment. Understanding of the external environment tends to be a point in time analysis coincident with the strategic planning cycle. A set of facts or shared beliefs about the external environment are presented and agreed upon by the leadership team, and then the strategy is then formed by narrowing a set of hypotheses about what the enterprise should do. The strategy is formalized, performance measures selected, and the whole package is communicated with stakeholders to influence their behavior in achieving strategic objectives. Of course, this is an idealized model, and many organizations fall short even of this established framework.

The disconnect occurs with strategy execution. While monitoring systems to confirm the internal hypotheses of the organization’s strategy are in force, little if any attention is paid to confirming the hypothesis of change in the external environment. External measurements are focused on the direct impact of the organizations efforts; on customer satisfaction, buying behavior, market share, and the like. But it is rare that anything more than a small fraction of the effort to monitor enterprise strategic performance is devoted to monitoring, testing, and either confirming or refuting the hypotheses of the external environment on which the original strategy was based. And the failure of most organizations to make strategic planning a continual process means that even with an awareness of a flawed external hypothesis, the internal hypotheses are unlikely to be quickly revisited as a result. To be blunt, once companies form their strategy, they become dangerously self-centered and oblivious to their environment.

Such was the case with Iridium, a failed attempt to create a global satellite-based mobile phone service. When first conceived, Iridium’s investors (a consortium led by Motorola) believed in a large market opportunity for phones that would work as well on top of Mt. Everest or in the middle of an ocean as in a metropolitan area. While the company was executing on its technology strategy, the terrestrial-based mobile phone industry was exploding. Phones became small, cheap, disposable, and network coverage expanded dramatically. When Iridium was finally able to complete its first satellite-based call, its phones were big, clunky, and expensive. The service simply couldn’t compete with terrestrial mobile, and billions of dollars of investor value was destroyed. Not only were the firm’s hypotheses about the future market for mobile phones flawed, but there was scant revision of the firm’s strategy as these flawed hypotheses became apparent.

Our earlier examinations of the DVD rental and recorded music industries are also relevant here. In each case, the environment changed faster than the underlying strategy, and disastrous results ensured. It seems to me that the principles and mechanisms for external hypothesis monitoring are far less mature and far less frequently accomplished that internal performance monitoring. And in this deficiency may be a root cause for the failure of so much strategic management.

Does your organization effectively and continuously monitor its environment, or just capture a snapshot periodically. Is your strategic management process prepared to quickly adapt to an emergent failure of an external hypothesis? Please offer your comments.

Saul Alinsky was born and raised in Chicago, where he became known for his organizing of meatpackers and later, civil rights groups. He is generally regarded as the originator of the term “community organizer” which was front and center in the rhetoric of last year’s U.S. presidential campaign – Alinsky’s teachings and writings influenced Barack Obama’s community organizing work in Chicago. Alinsky has always been a polarizing figure, even 37 years after his death in 1972. In the opening lines of Rules for Radicals, Alinsky wrote,

“What follows is for those who want to change the world from what it is to what they believe it should be. The Prince was written by Machiavelli for the Haves on how to hold power. Rules for Radicals is written for the Have-Nots on how to take it away.”

Alinsky wasn’t subtle, nor was he deferential. In plain language, he expressed his passion for change, and generations have learned from his wisdom.

No matter where you find yourself on the political spectrum today, the fact that you’re reading the Tenacious Blog means that you’re interested in effecting change in organizations, and much of Alinsky’s writing is as relevant today as it was during his lifetime. Organizational change doesn’t (usually) result from the kind of radical actions that Alinsky advocated, but change agents up against overwhelming resistance to change will benefit from his radical thinking.

In the course of my career, it has been my privilege to be a mentor to a number of younger management consultants. Most of them saw consulting as a simply a stepping stone to their next career opportunity, but a few of them were so engaged with the idea of management consulting as a profession that they couldn’t imagine doing anything else. It was to those few that I gave the gift of Rules for Radicals. My advice was to read the book with an open mind, and whenever appropriate, to substitute the word “consultant” for the word “organizer,” as well as some other substitutions. For example, in the chapter on Communication, Alinsky writes,

One can lack any of the qualities of an organizer (a consultant) – with one exception – and still be effective and successful. That exception is the art of communication. It does not matter what you know about anything if you cannot communicate to your people (your clients). In that event, you are not even a failure. You’re just not there.

Communication with others takes place when they understand what you’re trying to get across to them. If they don’t understand, then you are not communicating regardless of words, pictures, or anything else. People only understand things in terms of their experience, which means that you must get within their experience. Further, communication is a two-way processes. If you try to get your ideas across to others without paying attention to what they have to say to you, you can forget about the whole thing. (emphasis added)

Pretty radical stuff, right? If you’re serious about driving change in your organization, I guarantee that you’ll find wisdom, insight, and inspiration in this classic. I wish I could simply give (each of you) a copy of your own, but of course, I can’t. Eleven bucks at Amazon.com, or likely for even less (used) at your local college bookstore. Let me know what you think.

As I’ve started to sketch out some ideas for upcoming posts, I am painfully aware of the limited feedback upon which I can draw to select new topics. While Google Analytics is able to provide a daily validation that there is readership for the Tenacious Blog, the best validation comes from reader comments. When I hear from you, it helps me know which posts have been of value, and can inspire me (I hope) to better writing. So please comment whenever you can. Even just a word or two means a lot to me.

Writing a few hundred words every day has been challenging, of course, and some are cynical about the value of blogging itself. Blogging is a new kind of writing experience for me, and unlike others in my family, writing doesn’t come naturally. The editor in my head is constantly harping on my clumsy construction, my limited vocabulary, my propensity to substitute longer words for clearer ideas. But at least I am writing (nearly) every day.

Several weeks ago, I described the blogging experience to a friend as being like cooking (which I enjoy far more than writing) – you start with a set of ingredients, you do your best and serve up what you can, and hope for the best. Each day brings a fresh opportunity to create a masterpiece, and mediocre meals are soon forgotten.

The connection between blogging and cooking became much stronger for me with the recent release of the delightful movie “Julie and Julia.” Not only does it feature an outstanding (even for her) performance from Meryl Streep as Julia Child (the woman who changed the way America cooks), and sensual food shots, but Amy Adams as Julie Powell, perhaps the first blogger protagonist in a major film. Back in 2002, Powell decided to cook her way through all 500 plus recipes in Child’s classic Mastering the Art of French Cooking  in one year, and blog about the experience. Even if you’re not into food or cooking, the movie is a must-see, and certain to be part of next year’s Oscars.

That simple idea for a blog became a book, and now a movie. Julie Powell’s tenacity is an inspiration for me to keep writing. I hope you’ll keep reading.

The latent demand effect is all around us. A lengthy, expensive, and hugely inconvenient project is now underway to upgrade a tollway near my home (the Tri-State, for those of you who know the Chicago area). One chronically congested segment is being expanded from three lanes to four in each direction. But I am confident that once the new lanes are opened, the congestion will quickly return. Drivers who have been avoiding the bottleneck will be inspired to use the new roadway, and the demand will expand to fill the available capacity.

In general, growth in the capacity of a resource is rarely coordinated with growth in demand. Capacity growth is usually incremental – it happens in chunks. All at once, we get a faster computer, a new lane on the expressway, a new parking structure at the shopping mall.

Demand growth is more likely to be continuous, with the rate of growth increasing when new capacity is available, and decreasing when capacity is constrained. In most cases, demand growth is organic; the collective result of  many individual decisions, while capacity growth is the result of a single deliberate decision. And the absence of a deliberate decision to grow capacity is a effectively a deliberate constraint.

Such is the case with change in organizations. The natural state of organizations is a very limited capacity for change. But as the static definition of the organization’s value proposition becomes unaligned with changes in the organization’s environment (the result of emerging opportunities and threats), the demand for change increases. When the pressure to change becomes sufficient, leaders “unfreeze” the organization and undertake a change program, and all that latent demand for change comes forward. The decision to change can be met with excessive demand; more change than the organization is capable of accomplishing. And like the slow computer or the congested expressway, the organization may become paralyzed by excess demand for change.

Prioritizing the change agenda is tricky. In the absence of a clearly articulated strategy, changes are most likely to be prioritized through a political process – by those with the most power and the loudest voices. But not all change is good, and some may even be counter-productive. Deciding what not to change is just as important as managing the change program.

It seems to me that in this time of global recession, the latent demand for change is building up. The grim realities of interdependent global financial systems, climate change, the global labor market, and resource constraints have caught up with enterprises that have been riding the departed wave of prosperity. But many have hunkered down and are loathe to accept the risk of change when uncertainty is high and performance is low. But change will come – it must come.

Organizations should now prepare to manage their latent demand for change by establishing an effective strategic management system to chart a clear direction, identify and objectively prioritize change opportunities, and manage the pace of change to fit the capacity for change.

Or be swept away by the latent demand.

Mystery Industry Distribution Methods - sales in billions (Copyright 2009 The New York Times Company)

In 1973, this industry was dominated by one distribution method (the third big set of bars from the top), with a healthy share of business in a second method (the top set of bars). The value of each of these two methods peaked in 1978, replaced by the rapid growth of a newer approach that peaked in 1988 (the second set of bars), which in turn was eclipsed by the very rapid growth of yet another distribution method whose sales peaked in 1999.

So from this chart, we conclude that this is a large industry, whose primary distribution methods emerge and die out rapidly, and which enjoyed modest overall growth from about $11 billion in 1973 to about $17 billion in 1999.

While I expect that some readers may have seen this piece, and others will be inspired to find the article to learn more. But if you’re patient, I will reveal the rest of the story later this week. In the mean time, I have a couple of questions I hope you’ll answer in the comments:

1. What industry do you think this is?
2. What do you think the complete chart (which will go to the year 2008) will look like?
3. What would be some characteristics of your business strategy as a hypothetical key industry player in 1999?

Please offer your thoughts below. I’ll moderate any comments to ensure that the answer is not revealed prematurely.

Because of an abundance of spam comments, I’ve closed all prior posts to new comments. Of course, new posts will be open for comments, and I hope you’ll contribute to building a dialog here. If you’d like to comment on any post, past or present, you may also send an e-mail to comments@TenaciousTortoise.com. Your topic suggestions are especially welcome.

I also learned how easy it is to fall out of the routine of daily blogging. I am working on the first substantive post in a week, and should have it up soon. I’ll be working hard to regain the lost momentum.  

Thanks again for sticking around.

Over the next couple of days, I’ll be working to try to resolve the problem, and to apply some much-needed maintenance to the WordPress engine and Atahualpa WordPress theme that power the site (both are open source shareware platforms without which I wouldn’t have been able to build the site). So there may be an interruption in the blogroll and times when the site will be incomplete or unavailable.

Thanks in advance for your loyalty and patience. 

In the near term, the workaround for posting a comment to any post is to send it in an email to: comments@TenaciousTortoise.com – I’ll do my best to post them as quickly as possible. Please include an alias name by which you would like to be known, and the title of the post that your comment is for.

The Tenacious blog recently reached a minor milestone; 50 blog posts, and still going (strong?). I never imagined that it would be possible to write this much, nor how much work it would turn out to be. This seems like a good junction to take stock in the blog itself, and consider its future.

Much of my dismay about the comments bug is because your comments are extremely important. The field of change and strategy management is young, and like any of the behavioral sciences, there is so much less that is known than unknown. Our collective knowledge is built from shared experience. And while I have had a great deal of experience during my years consulting in this discipline that I enjoy sharing, I really hope that the Tenacious Blog will become a forum for the free exchange of ideas. Since it went live in mid May, I am delighted that the Tenacious Blog has had over a thousand site visits from 54 countries on six continents, and the number of RSS subscriptions has grown steadily. So we have a huge range of experience upon which to draw. Your comments can become the basis for discussion that will be far more valuable than just my own ramblings. So please don’t be shy about commenting.

Your comments are also especially valuable to me personally. I am new to writing in the blog format, and while I know that some of the posts have been popular (especially those that have been promoted on LinkedIn), others not so much. Your feedback will enable me to write (and seek out other authors) on those topics most interesting to you, not just to me.

Thanks again for your visits, and in advance for your comments. Stay tuned – after the site is fixed, there will be much more to come.

Although I was not yet thirteen years old on that July day in 1969, I was keenly attuned to the significance of the event (but not its political underpinnings). I grew up with the space program, so fascinated with the technology and the excitement of the spectacular televised launches, orbits, spacewalks, dockings, and splashdowns, that they are among my clearest memories of that time. Since then, movies (such as Apollo 13) and television (such as the outstanding docudrama miniseries From the Earth to the Moon) have catered to a continued appetite for recapturing the danger, glory, and tragedies of the time. But despite the persistence of our memories, mankind’s ambitions haven’t kept pace.

Tom Wolfe, acclaimed author of The Right Stuff (an account of the test pilots who became the USA’s first astronauts, and several other literary-journalistic accounts of cultural touchstones) wrote an op-ed piece in yesterday’s New York Times to mark the anniversary. Wolfe ruefully notes that although “everyone at NASA has known that the next logical step (after the moon) is a manned Mars mission,” that NASA’s overtures toward that aim have “been entertained only briefly by presidents and Congress.” Wolfe’s trademark sarcasm is mostly in check when he asserts that our subsequent failure to match the ambition of the lunar missions can be traced to NASA’s unmet need for a “philosopher corps” with the rhetorical skills to inspire us (and the politicians) to greater accomplishments.

The triumph of engineering that put men on the moon is unquestioned, and the transfer of space-race technology to everyday living has been well-documented. But it seems to me that the monumental organization of that brilliant engineering was equally brilliant, but has been far less successfully transferred to modern management practice. The space age may have led to the commercialization of Teflon for use in cookware (although it was actually invented several years earlier), but what are the big ideas that came from that success in mobilizing hundreds of thousands of people to a common purpose?

The phrase “If we can put a man on the moon….” has  been all-too frequently used to express frustration at some petty bureaucratic or technological shortcoming (and is now the title of a forthcoming book challenging government to regain its lost competence to make big things happen). Maybe it’s my imagination, but I don’t think we hear that clichéd comparison quite as often anymore. We need not look beyond the aerospace industry to conclude that some capability we had, whether it was engineering or leadership or both is now missing. Boeing’s revolutionary fuselage design for its new 787 Dreamliner widebody is certainly ambitious, but is its ambition even on the same scale as the Apollo mission? Yet the Dreamliner has yet to fly, years after Boeing’s self-imposed target.

It is easy to say that the elegant clarity of President John F. Kennedy’s challenge, and the perceived urgency of the USA’s need to dominate space were the sufficient leadership ingredients for success. Only my gut says that there was something more.  

Cronkite’s passing gives us pause for reflection; on his remarkable career, on the evolution of news and information sharing during our lifetimes, and the increasing irrelevance of network television news. Like many of my generation, I especially remember Cronkite for his role in two of the moments that defined 1960s America – his genuine emotion in November 1963 when he told us that President Kennedy was dead, and his boyish excitement at the triumph of the success of the Apollo moon landing, exactly 40 years ago this week.

As I reflect, I keep coming back to that phrase “the most trusted man in America,” and realize that I mourn not only Cronkite’s passing, but an erosion of trust in our society. When Cronkite delivered the news, its integrity was simply not an issue. But what person or institution today has earned anything close to the nearly universal trust that was felt for Cronkite?  I believe that it’s not just that there will never be another Cronkite, but that our world has shifted in a way that says we’ll never have that degree of trust in anyone or anything again in our lifetimes. Or maybe I am just older and more jaded now.

Observers far wiser than I may offer their explanations on how and why we’ve lost our trust, but I am more interested in finding and understanding the trust that does surround us. We trust our family members, our friends, our closest colleagues. Some trust the leaders of the organizations and societies of which they’re a part, but far more view those leaders with caution and suspicion. With our daily experience of economic crisis, job losses, Ponzi schemes, and the politics of polarization and demonization, the concept of trusted leadership seems increasingly remote. Whom among your leaders do you really trust?

Our institutions and organizations continue their poor record of success in changing themselves to survive and prosper in their changing environments. Successful change comes not only from a leader’s wisdom to present a compelling vision of a different and better future, but from the willingness of people in the organization to accept the risk of changing their own surroundings, of trying new things, of exploring the unknown. Successful change comes through leaders who are trusted by those led. But it is so rare to find leaders who inspire us to believe in ourselves the way Walter did. I’ll miss Walter Cronkite.

Condition IV: Capability Building

The skills of the workforce and the capabilities of the organization must change to support the change agenda.

Lesson 8: Don’t overlook employees’ beliefs when driving behavior change

McKinsey idea: Requiring behavior changes without understanding what employees believe may not have the desired effect. Behavior stems from personal beliefs, and without understanding those beliefs, mandated behaviors may run counter to employees’ self-perception.

Tenacious Tortoise comment: McKinsey’s example of bankers becoming uncomfortable with becoming salespeople is not convincingly applied in the general case. But it is easy to see that simply telling employees to do something they otherwise wouldn’t do will have less effect than patiently creating an understanding of why the new behavior is desired and understanding and addressing any discomfort that the new behavior creates.

Lesson 9: Skill-building programs aren’t enough

McK: Enterprises engaging in formal training programs in skills required for the change agenda see little effect if the training is treated as a stand-alone event. It is important to provide the opportunity to practice new skills, receive feedback, and share experiences with colleagues reinforces the training and ensures that new skills do not stagnate. Interspersing training and field experience with new skills enables new skills to ripen and mature.

TT: Sounds right, but there needs to be a bit of a reality check here. With increased specialization of knowledge workers, broad-brush training programs for large groups of workers have become far more rare than in the past. Leaders who pay lip service to the idea of training employees in new skills under-invest in training programs and the integration of training with the work itself. Outsourcing of functions to firms with lower labor costs or concentrated skills has decimated enterprise training programs. A surplus in the skilled labor market resulting from higher unemployment raises the incentive for organizations to simply hire proven skills rather than take the risk of training existing workers for new tasks. It seems unlikely that organizations will invest in the carefully-designed training and field integration called for by McKinsey’s authors.

Been There, Done That

In their article, the McKinsey folks have captured and consolidated some important lessons for anyone driving change in organizations. But reading through the article, I was struck with the extent to which these ideas are well-understood in the community of strategy and change professionals that I’ve worked with over the years. When consulting, we’re often in situations where we have to guide the decisions of our clients; big decisions about the strategy itself, but countless smaller decisions about the design of a communication program, how a leader should act in a meeting, how to tell a story, or what to do with incentives. It is easy for me to imagine much agreement and little interest in the lessons here among experienced consultants, simply because they’re already part of the practice of driving change.

What was missing in Kotter’s and later McKinsey’s assessment of the low success rate of change in organizations (see part 1) was the degree of experience in change management in each organization. The common sense lessons offered by McKinsey aren’t common sense to those leaders and managers with little actual experience in driving change. That the majority of change programs are led by persons with little experience is perplexing, that the majority of these change programs fails is not at all surprising. To drive change in the enterprise without the guidance of an experienced facilitator, is simply, ahem, irrational.

Condition II: Role Modeling

Conventional wisdom says that leaders must visibly behave in ways that reinforce the change agenda, and enlist others with influence to support the cause of change.

Lesson 4: Leaders are biased when seeing themselves

McKinsey idea: Most senior executives understand the concept of role modeling, in the abstract. But they mistakenly believe that they are already exhibiting the necessary behaviors. 360 degree feedback sessions and surveys help executives see beyond their own biased and generous view of themselves as ‘being the change.’

Tenacious Tortoise comment: Some executives view the strategic management process and change programs as a burden on their time – they say, “I need to get back to my real job.” These are the ones who are most likely to miss strategy review meetings, or arrive unprepared. The moment of truth comes when the senior executive either offers leeway and forgiveness, or holds team members fully accountable for their engagement with the process. I’ve seen months of good change program effort derailed when the leader him- or herself opts out of a critical meeting, or worse, is distracted by e-mail and phone calls during the meetings. Of course, these behaviors aren’t visible to rank and file, but the message sent in the leadership team has a profound effect on their subsequent behavior in the organization. This is why the quality of the coaching relationships I am able to build with leadership team members is a good predictor of the overall success of the change program.

Lesson 5: Don’t rely excessively on ‘influencers’

McK: The value of identifying and enlisting ‘influence leaders’ in the enterprise is unquestioned, but don’t view these influencers as the critical path to success. Unexpected members of the rank and file who ‘step-up’ to the change agenda may have more impact when driving change.

TT: In practice, far more energy is invested in developing the strategy than in broadly communicating strategy and performance across the organization. Identified influencers have often achieved that status because of their superior political skills. Enlisting influencers in the cause is no substitute for an effective communication program, and may require significant political concessions to those influencers to ‘buy’ their public support.

Condition III: Reinforcing Mechanisms

Policies, processes, procedures, systems, and incentives are all artifacts of the enterprise that must be modified to reflect the desired future state of the organization. But common sense changes don’t result in common sense behavior when people aren’t rational.

Lesson 6: Money is a costly way to motivate people

McK: Linking desired outcomes to staff compensation has limited impact on motivation. Meaningful links are difficult to establish, both because of low-credibility metrics, and because compensation incentives are usually too small to make a difference. But small, unexpected, often non-monetary rewards can have a disproportionately large effect on satisfaction and motivation.

TT: Compensation is simply not a motivator, it is hygienic, according to Herzberg’s Motivator-Hygiene Theory. Incentive-based compensations are far more difficult to implement successfully than they are to imagine. Fortunately, the frenzy I saw for linking compensation to strategy over the past decade or so has subsided a bit, and given the anxiety of job losses, pay freezes, and forced furloughs, this seems like a good time to resist the urge to establish these connections. Non-monetary rewards and recognition can be a powerful motivator, but institutionalized programs of such recognition can quickly lose effect and credibility. Understanding individual employee motivations is a far better investment of management energy.

Lesson 7: Employees care about fairness

McK: Employees won’t pursue a change agenda they perceive is unfair to customers, suppliers, or other employees. Leaders should spend much more time understanding how employees understand and perceive the impact of the change program on stakeholders. Employees asked to behave in ways they see as unfair to others will ignore or thwart the change agenda.

TT: Wise advice. Extreme pressure resulting from the global economic slowdown is causing most organizations to look at costs, and the impact of cutbacks is being felt by employees and customers everywhere. These realities are inescapable, but asking employees to do things they believe are unjust in the name of company survival, even at the risk of personal job loss, will inflict damage to the organization / employee compact that may take years to repair.

Next: Two final lessons from McKinsey.

The summary and my comments presented here (in three posts this week) are no substitute for reading the article itself, and it is likely that with some effort you can find a copy to view within your own organization or network of colleagues. My aim is to both entice you to read the article and to engender discussion here.

Despite the plethora of books and articles on the topic of Change Management since the 1996 publication of John Kotter’s Leading Change, McKinsey’s Carolyn Aiken and Scott Keller contend that the field of change management hasn’t been very successful. Kotter’s earlier research revealed that only 30% of change programs succeed; McKinsey’s 2008 survey of over 3,000 executives worldwide found that only about one change program in three is successful.

McKinsey’s Emily Lawson and Colin Price offered a framework for influencing attitudes and behavior in their 2003 article The Psychology of Change Management. They said that four common sense conditions are necessary before employees will change their behavior: a compelling story about why the change is necessary, leaders and colleagues modeling the role of change, reinforcing mechanisms to align processes and incentives with the change, and capability building of the skills needed for the change. Common sense, indeed – but the problem is that people aren’t always rational. Aiken and Keller revisited these four conditions to organize their nine new lessons why common sense doesn’t always work.

Condition I: A Compelling Story

Established thinking in change management says that ongoing communication of a compelling reason is a necessary ingredient for change.

Lesson 1: What motivates leaders doesn’t motivate employees

McKinsey idea: Leaders tell stories about change that are company-centric: ‘We can regain our leadership through change, determination, and hard work’ or ‘We’re falling short of our competition, and our survival depends on change.’ But employees have been shown in research to be motivated roughly equally by five factors: social impact, customer impact, company impact, team impact, and self-impact. So the typical change story misses 80% of what workers care about.

Tenacious Tortoise comment: Absolutely! As leaders progress in their careers and rise in their organizations, their own motivations become much more aligned with the company than when they were younger. Leaders think they understand how their employees think, but the fact that they’ve become leaders makes them think differently than rank and file employees. Focus groups in which new strategy messages are tested with employees easily reveal this gap in thinking.

Lesson 2: Let employees write their own story

McK: In a behavioral study, participants given a lottery ticket with a randomly assigned number in willing to sell back those tickets for far less than those who were given the opportunity to select their own number. When people are able to make their own choices, they are far more committed to the outcome.

TT: The success of the balanced scorecard programs I’ve led had a lot to do with the extent to which the cascade process enabled mid-level managers and front-line managers to understand high-level strategy and then express the story (as captured in the cascaded strategy map) in their own words. Facilitators need to strike a careful balance between mandating every word of strategy in the cascade and allowing sub-units of the enterprise complete freedom to go their own way.

Lesson 3: The story needs to be about both avoiding threat and seizing opportunity

McK: While the ‘deficit-based’ approach (identify and then fix a problem) is the predominant change model taught and used, a ‘constructionist’ approach (discovering, dreaming, and designing solutions around new ideas) has arisen as a reaction to the blame and resistance that results from a purely deficit-based model. Excess emphasis on either model in the change story is risky.

TT: Not a very compelling lesson from McKinsey. It is easy to say that emphasizing either extreme is a bad idea, but they offer no guidance on finding the optimal point between the two extremes. It’s a fine line between beating up people for poor past performance and losing credibility with unconvincing ‘blue sky’ aspirations for greatness.

Next: More lessons from McKinsey.

Second, the scale of the commitment. Despite the visibility and success of the Beyond Petroleum advertising campaign, alternative energy provides less than 1{7d517eca6fa2b1f37358396ef304f8a78637162298d2da9398058e81473e3d6a} of BP’s revenues and is not yet profitable. Only about 5{7d517eca6fa2b1f37358396ef304f8a78637162298d2da9398058e81473e3d6a} of BP’s capital spending this year has been devoted to alternative energy. So our impression of BP had been moved much further along than the company itself.

BP's rebranding was more successful than its strategy. From the BP Alternative Energy web site.

Third, culture. According to Crooks, critics argued that the Beyond Petroleum campaign sent a message to the majority of the company’s workforce that theirs was an outdated part of the business. It also set BP up for attacks from green campaigners, who could never be persuaded that the company had done enough to live up to its promise. But in May, Tony Hayward described the company when he took over in 2007 as having “too many people that were working to save the world.” Ouch!

Forth, profits. During much of the decade, the oil and gas industry had been making record profits, and last summer’s spike in world oil prices led to historic windfall profits. With lavish profits, BP could afford to be seen as the vanguard of a new era, but with the falling prices and demand arising from the global economic crisis, BP has focused on cutting costs to remain competitive with such rivals as Royal Dutch Shell and ExxonMobil.

There is much to parse in trying to extract a succinct take-away from this. Big companies are often slow to react to or anticipate changes in their environments, but Lord Browne was exercising uniquely bold leadership with his vision of changing BP from a petroleum company to an energy company. Such a transition was certainly likely to outlast his tenure – so did he and BP insufficiently bolster its strategy to survive a leadership change, or was the company simply under-invested and under-committed to the evolution that Browne envisioned? If so, skeptics would argue that it never should have pursued the strategy in the first place.

Crooks points out that alternative energy isn’t going away, but that BP (or any oil company) won’t be leading the transition. This opens the door to newer, more nimble competitors. Just as IBM failed to realize the potential of the personal computer, established energy companies may be superseded by new ones able to exploit the new forms of energy.

Is this the generic fate of large companies? Are they so encumbered by shareholder expectations and cultural resistance to change that their leadership must be ceded to new generations of companies (e.g. IBM, then Microsoft, now Google). Or will the science and practice of strategic management better provide future visionaries like Lord Browne to drive durable change? In this era of ‘Yes we can’ are company leaders still constrained by ‘No you can’t?’ Please share your thoughts below. 

(disclosure: BP was a client of mine from 2003 to 2005)

Strategy review meetings are the necessary venue in which leaders periodically evaluate the progress of the change program. They are typically held quarterly, and include a review of current data for performance measures that track progress toward established strategic objectives. In these meetings, leaders are also charged with identifying new initiatives, and managing the existing portfolio of initiatives. Leaders may establish new performance measures and discard those that aren’t revelatory. While this process is designed to implicitly test the hypotheses that comprise the strategy, at least once per year this meeting requires an explicit review of the entire strategy, with the expectation that modest changes will be made.

Clearly understood roles and responsibilities are vital to the success of these meetings, and should be explicitly stated, especially since they may be unfamiliar and not intuitive to those participating. The most important of these roles is that of Performance Advocate (PA).

The leadership team is typically comprised of the formal leader of the organization, along with his or her direct reports; but variants are possible, especially when the scope of the strategy being managed spans organizational or even enterprise boundaries. Leadership teams work best when they’re neither too small nor too large; most teams fall in the range of 8-12 persons. When teams are much larger than about 15 people, there is a substantially increased risk that the meeting becomes an arena in which politics and posturing take center stage. Smaller teams tend to be dominated by the formal leader of the organization, and have an increased risk of ‘groupthink.’

Each member of the leadership team, including the organization’s leader, take on the role of Performance Advocate. There is a named PA for each of the 15 to 25 (typically) objectives on the strategy map. Although I strongly recommend that there only be one PA for each objective, some organizations insist on sharing the responsibility for some or all objectives among two PAs. The result is often less productive since the division of labor is hard to manage.

Since there are almost always more strategic objectives than members of the leadership team, each team member will serve as PA for more than one objective. No member of the leadership team should be excused from the PA responsibility, and the allocation of these roles should be as even as possible. PAs usually volunteer or are appointed at the conclusion of the strategy map design process. 

The use of the term ‘Performance Advocate’ is deliberate – you should resist the inclination to say that each objective has an ‘owner,’ since the team as a whole is collectively responsible for the execution of the strategy. While an ‘Owner’ may be personally blamed for inadequate performance toward an objective, the PA helps the leadership team as a whole accept responsibility for strategic performance.

The primary responsibility of each PA is to ensure that the measurement and reporting data are complete before each strategy review meeting, and to lead focused discussions about their objective(s) at review meetings. Between meetings, PAs follow up on performance issues, drive the completion of action items, collaborate to resolve issues, and prepare for the next meeting.

In our article, Jay and I also identified supporting roles: Measure Coordinators who assist the PAs in preparing and analyzing measurement data; the Editor, who is responsible for pulling together and publishing the quarterly report that is the basis for the strategy review meeting; and an outside Facilitator, whose objectivity and expertise in the strategic management process is vital to keeping the meeting on-track and productive. Each of these roles, along with the evolution of the Strategy Review meeting in organizations new to BSC management, will be elaborated in future posts. 

An easy way to think about initiatives is that they represent a minority subset of all of the work done within the organization. The majority of all work falls into the subset of process; activity that is accomplished to sustain the current value creation of the organization. Process activity tends to be repeatable (it is done over and over), perpetual (it is expected to be done implicitly until an explicit change is made), and mandatory (it must be done).

By contrast, initiative activity is discretionary (it is done as the result of an explicit decision), limited-term (it will end when a specified outcome is reached or it is cancelled), and unique (it is only done once). Many people think of projects and initiatives as synonymous, but it is more useful to think of an initiative as a grouping of one or more related projects.

Ideally, all work activity in an organization could be classified as either process or initiative. Both types of activities consume financial resources, explicit spending, or implicitly through the allocation of peoples’ time. In reality, people engaging in work may not know whether their work is process or initiative.

Initiative activity can be further classified as strategic or non-strategic. To be strategic, an initiative’s intended outcome must change the way in which the organization creates value. Non-strategic initiatives generally are intended to optimize the way in which the organization delivers under its current value proposition, or simply to accomplish an immediate operational objective.

With these definitions in force, there is much to be learned by examining your organization’s overall activities. To what extent are the organization’s leaders aware of initiative activity? What is the ratio of resources devoted to process vs. initiative activity? What share of initiative activity is strategic?  Is there any collective understanding of all initiative activity; can anyone see everything that is being done by choice?

This last question is critical. Each activity consumes precious time and financial resources. In the aggregate, initiative activity should be viewed as a portfolio of the organization’s investment of discretionary resources. Portfolio management of initiatives ensures that those precious resources are being invested in opportunities that are aligned with the leadership’s intent for change in the organization.

In those enterprises where the strategic management process is immature or non-existent, new initiatives (new investment of resources) are undertaken as a result of delegated management discretion, which means relying on locally-interpreted goals. Without effective coordination, the result is a portfolio of initiatives that are unaligned with strategy, initiatives that duplicate one another or work at cross purposes, and an inventory that is larger than the organization’s capacity to accomplish them. Because starting a new initiative is usually easy, members of the organization simply have more to work on than they have hours in the day. In organizations with effective strategic management, decisions to undertake initiatives are made more carefully, and in the context of the change agenda.

When facilitating strategic management with a new client, one of my most productive efforts is to simply talk with people in the organization. A more revealing question than “What is your job?” is “What are you actually working on?” The answers say a lot about the strategic management process.

What are you actually working on? How much of your time is spent in process vs. initiative activity? Do you know how your initiatives fit into the overall strategy for the enterprise? Please offer your comments and insights below.

In future posts, we’ll look at practical approaches to managing initiatives in the enterprise.

If you drop a frog in a pot of boiling water, it will of course frantically try to clamber out. But if you place it gently in a pot of tepid water and turn the heat on low, it will float there quite placidly. As the water gradually heats up, the frog will sink into a tranquil stupor, exactly like one of us in a hot bath, and before long, with a smile on its face, it will unresistingly allow itself to be boiled to death.

So goes the often cited and vividly unfortunate metaphor of the poached frog, which is used so often in business settings that it has become a tired cliché. James Fallows of the Atlantic Monthly has even devoted an entire series of blog posts devoted to the worthy cause of banishing its use, and the myth has been busted by scientists and journalists alike, notably in Issue 1 of Fast Company. I confess to having succumbed to the lure of using the poached frog story myself, but I have since foresworn using it, and encourage you to do the same.

The metaphor is appealing because it can be applied to support opposing arguments. ‘Don’t change too slowly,’ one conclusion tends to go, ‘because people won’t engage with gradual change before it’s too late.’ The opposite conclusion says, ‘Don’t try to change everything all at once, because people are simply unable to handle the shock.’ One (or even both!) of these arguments have been used at times by many of our consulting brethren; to support a recommended fast pace of change in a client organization, or to incite a response to a threat that has grown too gradually to notice. But there is no universal truth about the pace of change.

Despite the weakness of the metaphor, understanding and managing the pace of change is really important. Excess caution in driving change enable skeptics and resistors to simply ‘ride out’ the change program while saying, ‘this too shall pass.’ Excess appetite for change risks distracting the organization from its legitimate efforts to deliver on the current value proposition, and exceeding what I call the organization’s capacity for change.

I believe that each organization’s unique capacity for change changes from time to time like the weather. Separate from the organization’s capacity for change is its necessity for change, a variable which is driven by threat and opportunity in the organization’s environment. All too often, periods of low capacity and high necessity coincide to doom a previously healthy organization to failure.

The objective of successful strategic management is not to simply drive a specific change, but to increase the organization’s overall capacity for change, While change is absolutely essential for the long-term survival of every organization, attempting to drive a degree of change in excess of the current capacity will have devastating results. The ability to change is an asset; the nimble enterprise with reserve capacity has an advantage over less-prepared competitors. But successful strategic management also requires an explicit awareness of the necessity for change through an ongoing process of monitoring, discussion, and hypothesis testing to enable good decisions about when and how much change to ask of the organization.  

Does your organization have the capacity to change that it needs? Is your leadership constantly aware of the necessity to change? What steps have been taken to make your organization more capable to change? Please respond below with your insights and comments.

(This post also appears on Heather Stagl’s blog at Enclaria.com.)

This thinking agrees with my own experience. Well-intentioned organization leaders may be cognizant of long-term risks and opportunities, but disproportionately focus their time and attention, as well as the organization’s scare resources, on short-term risks and results. This “short-term-itis” as I like to call it, is especially prevalent in for-profit organizations fixated on quarterly earnings reports and stock market valuations. We have certainly seen the adverse impact of short-term thinking on the U.S. auto industry.

But long-term thinking is not completely out of reach. An effective strategic planning process is naturally inclined to shift a leadership team’s thinking beyond the near-term, at least when the team is together and charged with the strategic planning task. But what is crucial is what happens when they return to their “day jobs.” Are your leaders making their everyday decisions in consideration of long-term consequences, or in terms of short-term risk and rewards? The allure of short-term thinking is exceptionally strong, and increases with the level of anxiety and uncertainty in the organization and its competitive environment. So a key indicator of the effectiveness of your organization’s strategic planning process is the extent to which it changes the way every member of the organization thinks about its long-term future.

According to Kristof, it’s kind of like dental floss. His glib conclusion: “When we work at it, we are indeed capable of foresight: If we can floss today to prevent tooth decay in later years, then perhaps we can also drive less to save the planet.” Based on the challenge of sustaining the strategic planning process in most organizations, my conclusion: “Don’t bet on it.“

While the ITO strategy framework takes the form of a balanced scorecard (BSC) strategy map, it can be legitimately applied to any discussion of ITO strategy, even if there is no intent to fully develop the ITO strategy map, objectives, targets, and initiatives that constitute a proper BSC. Given the propensity of most ITOs to excessively focus their change agendas on the domains of cost and quality, with insufficient focus on the equally important dolmans of agility and innovation, the framework provides the basis for a balanced change agenda. When used as the basis for a BSC strategy map, the framework contains and organizes the recommended inventory of 20 to 30 strategic objectives for the ITO.

Value Creation Dimension

The four perspectives that constitute the value creation dimension follow the generalized model that can be applied in both for- and non-profit organizations, which applies to business units and support groups inside the enterprise. The names of the four perspectives: Capabilities and Assets, Internal Process, Partner, and Enterprise Results – describe how the ITO creates value. The IT organization develops and sustains its capabilities and assets, which it employs to execute its internal processes, in order to deliver valued services to its partners within the enterprise, enabling those partners to achieve and deliver desired results to the enterprise and its external stakeholders.

Of course, the most important focus in the Capabilities and Assets perspective is the people that make up the ITO, but their skills and knowledge perform in the context of both ITO and enterprise strategy; nearly every ITO’s leadership is explicit about their desire to change the culture.

Every sustainable ITO has well-established processes for service delivery, and this is where the bulk of management energy is applied. But the model invites equal consideration of processes for establishing and enhancing alliances with internal partners, and engaging with those partners to develop innovative applications of technology to create new value for the enterprise.

Nearly all of the dozens of ITOs with whom I’ve worked recognize the importance of satisfying their internal business unit and support group ‘customers’ and understand that calling them customers sends the wrong message. By naming this perspective Partner, the framework reflects the shared desire on the part of the ITO and the groups it serves to achieve a true partnership in their relationship. And the ITO and its partners share, and are fundamentally guided by, their desire to achieve exceptional Enterprise Results.

Organizational Evolution Dimension

The domains of Competency and Contribution overlay and bisect the Partner and Process perspectives to ensure that the ITO doesn’t aspire to mere competence, which is necessary but not sufficient to realize the ITO’s full potential. As the IT organization demonstrates its competency in managing costs and delivering quality services, it establishes the credibility to collaborate with its partners to contribute to enterprise value creation. At the highest level, a journey from competency to contribution represents the aspiration of nearly every ITO.

Process Themes

The three themes in the Process perspective elaborate this evolution from competency to contribution focus. On a foundation of its processes for Operational Excellence, the IT organization expands its focus to build and manage Partner Alliances and lead delivery of innovative Solutions. By allocating equal space to each of these themes in the framework, ITO leadership is invited to move beyond the status quo focus on operations and aspire to higher goals.

It’s Only a Framework

This structure can enable the kind of leadership team discussions necessary at the onset of the change program. One powerful way to begin is to place a (virtual) Post-it note on the appropriate spot in the framework for every change initiative currently underway in the ITO – there is a pretty good chance that they won’t be evenly distributed. The implicit question, “Is this where we need to be focusing our efforts?”

Of course, the perspectives, domains, and themes presented here have generic that I’ve chosen to convey the concepts on which they are based. They can be renamed to fit your ITO’s culture and existing vocabulary. It is vital to use the language is meaningful to the intended audience; this can entail preserving existing vocabulary, or even deliberately creating new language to convey the urgency of the change program.

Needless to say, in future posts, I will have far more to say about each of the areas in the framework, as well as a set of generic strategic objectives to populate the framework.

Does the framework make sense in your ITO? If you already have a strategy map, how does it compare? Please offer your comments and insights below.

But few of us have the benefit of formal training in art and design, and many rely on default settings in such programs as Excel and PowerPoint to determine how our charts and graphs appear. We simply think far less about the grammar and construction of our data than we do about our words.

The Facebook post pointed to an op-ed piece in the New York Times by Charles M. Blow and accompanying graphic. The graphic powerfully (and some might argue unfairly) presents a lot of information in little space to illustrate Mr. Blow’s point. My aim in including the graphic here is not to get into the politics, but to illustrate the power of graphics to communicate. The graphic reminded me of an experience I had around 10 years ago that profoundly improved my graphical communication skill and mindset, and it all happened in one day. I am referring to my attendance at a one-day seminar conducted by a brilliant scholar in the field, Edward Tufte. Tufte is Professor Emeritus of statistics, information design, interface design and political economy at Yale University, and author of a series of stunning books on graphic design: The Visual Display of Quantitative Information, Envisioning Information, Visual Explanations: Images and Quantities, Evidence and Narrative, and Beautiful Evidence. He has also been a vocal critic of PowerPoint, a sample of which can be found in his article PowerPoint is Evil a few years ago in Wired Magazine. Here’s a taste (emphasis added): “…slideware – computer programs for presentations – is everywhere: in corporate America, in government bureaucracies, even in our schools. Several hundred million copies of Microsoft PowerPoint are churning out trillions of slides each year. Slideware may help speakers outline their talks, but convenience for the speaker can be punishing to both content and audience. The standard PowerPoint presentation elevates format over content, betraying an attitude of commercialism that turns everything into a sales pitch.” Disciples of Tufte are thoughtful and considerate of choices in how to present data – far beyond the insight needed to choose between a pie chart and a bar graph. His thinking doesn’t provide absolute answers about right and wrong, but a way of thinking about conveying information that will make you (and ideally your change program reports) more effective. Balanced scorecard (BSC) reports of performance measures are notoriously data rich and information poor. Most of the available software for BSC reporting acts to constrain rather than broaden the user’s choices for presenting data, and to segregate and subordinate any added contextual prose. In their passion for simply getting the numbers into the report, contributors spend little time considering choices for how to present the information. But effective reporting content enables effective strategic decision making, and the reverse is always true. Those serious about effective communication are well advised to attend one of Tufte’s one day seminars, which are offered at locations around the U.S. at the very modest cost of $380 (currently), a bargain that includes copies of all four of the books listed above. I strongly recommend this experience to all visitors to the Tenacious Blog.  Have you attended Tufte’s seminar? Do you have examples of particularly effective or poor graphics? Please share them below. (If you need help including a graphic, drop it in an e-mail, and I’ll figure out a way to include it).

New York Times Correction: June 30, 2009 The chart accompanying the Charles Blow column on Saturday incorrectly identified which presidential candidates won Maine and Tennessee in 2008 in a list of states ranked by subscriptions to online pornographic sites. Maine voted for Barack Obama, not John McCain. Tennessee favored Mr. McCain, not Mr. Obama.

“Figures often beguile me, particularly when I have the arranging of them myself; in which case the remark attributed to Disraeli would often apply with justice and force: ‘There are three kinds of lies: lies, damned lies, and statistics.‘”

While there is certainly deliberate distortion of statistics every day in the political sphere, we hope that the measures that become part of a strategy execution program are effective in both motivating behavior and helping people make good decisions. There are many blog posts yet to be written about checks and balances in the design of measurement processes. But it’s a good idea to begin with a shared vocabulary of measurement. Two fundamental terms in the measurement discipline are accuracy and precision. 

A bag full of marbles may be said to contain ‘about 100 marbles,’ but it is accurate to actually count the marbles and be able to say that the bag has ‘exactly 103 marbles.’ With the marbles, we reach absolute accuracy by direct observation. But most measures can’t be directly observed, and determining their accuracy is less straightforward. When a web site says that it is 91 degrees where I live, but my outdoor thermometer says that it is 86 digress, it isn’t clear which measurement is more accurate, especially since temperature isn’t observable. It is the measurement process that determines accuracy.

Observability doesn’t guarantee accuracy. A call center manager may measure call volume per employee during a one-hour period by watching his employees and making tick marks on a piece of paper, but that direct observation is subject to error. Statistics from the telephone equipment in the call center should be more accurate (unless there is a flaw in the equipment’s software).

We’re surrounded by measurements that we can’t independently confirm, and we take the accuracy of most measurements for granted. Our inclination to trust a measure has as much to do with the source of the information (the web site vs. my wall thermometer) as the measurement process itself. It’s also important to remember in the business setting that those performing a measurement process may have an interest in the interpretation of that measurement.

Precision is a simple attribute of measurement. It is simply the fineness of distinctions made when expressing a variable. When I tell you that the bag of marbles contains ‘about 100 marbles,’ I am fairly representing an absence of precision in the measurement. But if I tell you that the bag contains ‘108 marbles,’ I am expressing a degree of precision (down to the single marble) that implies accuracy, that is independent of how I actually arrived at the number. If the call center manager’s tick marks result in a calculation of 3.42 calls per employee per hour, we trust his measure simply because of that degree of precision.

It is simple human nature to confuse precision with accuracy. My outdoor thermometer is digital, and is actually telling me that it is 86.9 degrees outside. The web site says 91 degrees. If I hadn’t taken the time to think about it, I might be more inclined to believe the outdoor thermometer, just because of that decimal point, but my healthy skepticism says that I shouldn’t. All I know for sure is that it’s hot.

A simple tool, which I call the Change Agenda (many other variants and names for this approach are used by management consultants) entails capturing and naming a small number of dimensions (or topics) for change, and driving leadership team consensus on a desired future state for each. The result can be visualized on a single screen image or sheet of paper that requires almost no explanation. This tool is especially useful when there is a past history of failed BSCs, or the leadership team simply isn’t yet bought in to the idea of the BSC.

The process is pretty straightforward. Identify the leadership team (should be no more than about 15 people, 8-12 is typical) and schedule 30 to 45 minute interviews with each. In each interview, explain the process, and ask the team member to envision the organization as a great success at some future point (I like to pick an easy date to visualize, like the January 1st or the first day of the company’s fiscal year), typically two to five years hence. The key question: When you compare that successful organization with today’s, what is different? Ask open-ended follow-up questions and capture everything you hear.

In capturing each leader’s answers, you can begin to shape their vision into a shared vocabulary. This doesn’t mean you are changing the vision, but you are enabling the process by facilitating agreement on the words. So if the first person says, “We are terrible today at supplier management,” and the second person says, “We will have better costs of raw materials,” they might be talking about the same thing, procurement. So restate: “So are you saying that we need to change the procurement process?” If the answer is ‘yes,’ great. If the answer is ‘no,’ that’s great too. Each interview enables you, as the facilitator, to better understand what is important in each leader’s future vision. Don’t try to shape too much – there’ll be time for that during the facilitated session.

After all the interviews, but in advance of the facilitated session, prepare a presentation slide (e.g. PowerPoint) with three columns on it. The first column is your distilled list of topics raised. Each topic should only be a couple of words. The third column is the desired future state for each topic, as best summarized by what you’ve heard. You may quote a team member, but only if the words are sufficiently generic to shield the speaker’s identity. The second column is the current state for each topic. This is less important than the desired future state, but whatever words you choose here will be controversial. That’s okay. The hardest part of this exercise is to fit this work on only one page. Don’t fret if you can’t, but one page is your goal. Three pages makes for a very lengthy facilitated session.

In the group session itself, you should review the process before revealing the slide. Congratulate the team on their strongly-held beliefs, and note how much (or little) they seem to be in agreement. Reveal each topic, one at a time, and briefly describe the current and desired future states. Ask your group to hold their comments, which may be difficult. After you’ve briefly described each topic area, the discussion can begin.

I like to ask the team to first look at the topics, and ask if there are any that can be combined. Getting agreement on the topic list is the first milestone in the process. Try to get agreement to the items and words in the topic list before discussing the future state. The most powerful way to change the slide in real time is to have a helper sitting at a laptop computer connected to a projector, so that everyone can see the slide evolve. If this isn’t possible, a large white board with dry-erase markers can be used.

The discussions of each topic will be energetic, and may go on a bit. It’s hard to convey the skill needed to bring each of these discussions to closure, but your most important skill as a facilitator is to listen. As part of each topic discussion, you should also gain agreement on a few words to describe the current state. These words should be less focused on criticizing past decisions, but to provide a clear point of departure for the journey to the desired change.

At the end of the session, you will have (ideally) facilitated agreement among the leadership team as to the desired future state for the organization. This is not a trivial task, and you should graciously accept the teams thanks for your skillful facilitation effort!

Here is an example of the change agenda I facilitated for an IT organization that was published in Kaplan and Norton’s Strategy Maps. In future posts, I’ll dive into the content of this and other organization’s change agendas, and talk about next steps.

Back in 2004, Malcolm Gladwell (staff writer for the New Yorker and author of The Tipping Point, Blink, and Outliers), published an article in the New Yorker called Big and Bad – How the SUV ran over automotive safety. Gladwell is one of my favorite writers; he is able to present obscure and arcane research in a way that is interesting, understandable, and relevant, and Big and Bad is no exception. I saved the article and have occasionally referred to it in client workshops and speaking engagements, to illustrate how our gut beliefs can be far from the truth. But recent circumstances have made his article even more relevant as an illustration of the law of unintended consequences.

The article relates facts and observations that aren’t necessarily well-known or understood:

• Since SUVs are classified as trucks, they don’t have to comply with two key sets of regulations that apply to cars, fuel efficiency and safety.
• Because trucks don’t have crumple zones and unit-body construction (Gladwell describes the Ford Expedition as essentially a Ford F-150 pickup truck with an extra set of doors and seats), they are far easier and cheaper to build than cars.
• Despite an estimated manufacturing cost of only about $24,000, Ford introduced  the Expedition at $36,000, and demand was far higher than Ford anticipated. By the late 1990s, Ford’s Michigan Truck Plant had become the most profitable factory of any industry in the world.
• Focus groups revealed that consumers liked SUVs’ elevated driving position, and that buyers thought that big, heavy vehicles were safe.
• But SUVs aren’t as safe as other vehicles. Minivans, with their unit-body construction, do far better in accidents than SUVs. And with their greater weight, SUVs are far less maneuverable than smaller cars, and thus less able to avoid accidents in the first place.
• In a small car, a driver is constantly reminded of the necessity of driving safely and defensively. In an SUV, the driver is above the road and therefore less cognizant of road hazards, resulting is riskier and less defensive driving.

In short, SUVs became popular because people felt safer in them, and that popularity was very profitable for car manufacturers. But that safety was an illusion. Intrigued? Dubious? Read Gladwell’s article here.

The law of unintended consequences tells us that any purposeful action will produce unexpected outcomes and impacts, and the history of SUVs sure illustrates that. At the micro level, drivers who intended to drive safer cars wound up in cars less safe than the alternatives, and paid more for their transportation.

But there have also been profound unintended consequences at the macro level. Auto makers who sought and obtained the truck exemption to fuel economy and safety standards, got massive short-term profits and long term vulnerability (to the point of bankruptcy for GM and Chrysler) from their excess dependence on SUVs for corporate profits. The U.S. government, seeking to bolster the U.S. auto industry by providing the exemption was instead complicit in bringing that industry to the brink of collapse in the wake of higher fuel prices, economic downturn, and evaporating demand for SUVs. And the government’s intent to reduce vehicle emissions created a vehicle class that pollutes more per passenger mile than automobiles. And the resulting demand for fuel has certainly had unintended consequences on the U.S. economy and its foreign policy.

The law of unintended consequences is inescapable, but organization leaders and strategists should heed the lesson. They should carefully examine their strategic objectives to answer the question, “What else will happen as a consequence of our success with this objective?” Those leaders should frequently measure and monitor the result of change in their organizations to quickly identify and respond to those unintended consequences.

Do you have an example of the law of unintended consequences in your organization? Please share it in your comments below.

Before IT can begin contributing to the execution of business strategy, it must first demonstrate its competency in cost control and quality. Defensive ITOs focus their time and energy on defending the IT budget and keeping systems running properly. There aren’t too many Defensive ITOs; either they’ve improved marginally to the Responsive stage, or the problem has been addressed by outsourcing the entire IT function.

Reactive ITOs sustain their focus on cost and quality, but expand their focus to better handle the stream of requests for IT services. Reactive ITOs must navigate internal enterprise politics to successfully allocate scarce IT resources among competing requestors. The majority of ITOs that I’ve observed are at the Reactive stage of maturity.

When cost and quality are no longer a central focus for the ITO (although these domains can never be ignored), the focus shifts to the domains of contribution: agility and innovation. Responsive ITOs are those where the greatest energy is spent on defining, managing, and building a partnership between the ITO and its enterprise customers. The ITO – business partnership is most evident when the ITOs representatives are included in each business unit’s strategic planning process. In the Responsive stage, the ITO is credibly able to undertake technology research on behalf of the enterprise. But building and sustaining trusted partnerships is challenging, and can easily be set back if issues of cost and quality return.

A true Strategy-Focused ITO (SFITO) is seen by all as competent in managing cost and quality, responsive to business unit strategy, and able to anticipate, identify, and propose new technology applications that enable strategic evolution in the firm’s value proposition. At the center of technology solutions leadership, the Strategy-Focused ITO is recognized as a full partner in formulating and executing enterprise strategy.

What stage of maturity do you think your IT organization has achieved? What behaviors demonstrate this maturity? How did the ITO reach this stage, and what efforts are underway to further mature? I hope you’ll share your reactions to this model and your own experience in the comments below. Much has already been posted, and much more will be written about the SFITO concept in future posts.

Carefully Balance Autonomy and Mandates to Answer the ‘What’ Question

The ‘what’ question entails the actual content of strategy maps and measures. Unsurprisingly, there have been a variety of approaches used, with mixed results.

One such approach is to simply cascade the enterprise-level strategy map intact to subordinate units, and requiring them to select their own measures, which may be unique, subordinate to, or identical to enterprise-level measures. Sometimes there are no strategy maps at all at subordinate levels. But business and support units each have their own internal value proposition, and the top-level strategy map is rarely a good fit at subordinate levels. The motivation for this approach may not be benign; it has been employed to both eliminate the effort of creating subordinate strategy maps, and to offload the effort of collection measurement data to the subordinates. This approach is likely to create resentment at the subordinate level, and rarely results in a sustainable change program. Avoid this approach if at all possible. 

A more balanced approach is to require that subordinates follow the established vertical and horizontal structure of the parent strategy, but give them the freedom to establish their own objectives and measures. The reward from this approach is much higher engagement and buy-in for subordinate leadership teams, but the risk is fragmented or unaligned strategic messages. It is best to ensure that the same facilitator(s) who guided development of the higher-level strategy also facilitate development of the subordinates’ strategies – the facilitator can guide leadership teams to a better-aligned change agenda. It is important that subordinate and parent strategy maps resemble one another (I describe it as a ‘family resemblance’) and that there are no obviously conflicting strategic objectives. An excess of autonomy at subordinate levels will fragment and confuse the strategic intent.

The endless additional variations on approaches to managing cascaded content simply cannot be captured properly here. Please submit comments with your organization’s approach, and how well it is working.

The ‘Who’ Question Helps to Answer the ‘How’ Question, and Informs the ‘When’ Question

The ‘Who’ question is far easier to answer, as in, ‘Who facilitates the cascade?’ As the organization cascades its strategy deeper and deeper, the number of parallel efforts quickly multiplies. To save time and money, the pragmatic approach has been to enable third- and fourth- tier groups to self-facilitate their strategy development. Don’t do this. An expert, objective facilitator, (whether an outside consultant or from the enterprise’s own strategy office) is absolutely essential to the success of each step in the cascading. Self-facilitated meetings are likely to create poor quality BSCs, or none at all. Another unwise approach is to have the strategy create the strategy map and measures for the subordinate organization, and simply provide it to them as a mandate. This easily alienates the subordinate organization to the entire process, and loses any possibility of true engagement with the change agenda.

The ‘How’ question is answered by the choice of facilitator. An expert facilitator makes good decisions about the process of creating the BSC on the basis of his or her past experience, and tailor the approach to the unique characteristics of each subordinate organization. There is no one right way to make or cascade strategy in an organization; sadly, there are many ways the process can go awry. Expert facilitation is insurance against bad outcomes.

We now return to the ‘When’ question. Leaders want to sustain the momentum of enterprise-level strategy development, and aggressively pursue rapid cascading. But the enterprise probably doesn’t have the facilitation capacity for too many such efforts simultaneously, and this is where dangerous shortcuts are likely to be considered. It is far better to develop a high-quality cascade over time than one that is rushed and poorly-executed. A carefully planned and executed cascade is an essential ingredient to an effective and sustainable strategic management effort.

Agree with these ideas? Disagree? Seek clarification? Please comment below with your own cascading experience and questions. I hope we’ll have a robust dialog here.

Look Beyond the Organization Chart to Answer the ‘Where’ Question

The easy and obvious approach to deciding where to cascade in the organization entails looking at the organization chart, and deciding which business and support units should get their own BSCs. So simple and obvious that leaders miss the fact that there are other approaches that may be more effective.

When an organization’s structure changes slowly over time, it is usually due to the political pressure to preserve leadership roles for certain individuals, as well as the natural resistance to change. These are the organizations whose members see themselves as working in ‘silos.’ The effect of a static organization structure may be to sub-optimize the organization’s effectiveness. The organization’s value proposition may need to evolve to meet external opportunities and challenges, but that evolution is constrained by an assumption that the existing structure is sacred. When decisions about the strategy itself are made in the context of the assumed permanence of the organization structure, it can be said that ‘Strategy Follows Structure.’ This is an unnecessary and prospectively costly constraint on the change program.

But some organizations restructure too frequently. There, the absence of certainty creates an underlying level of anxiety for staff members and managers, and valuable energy is devoted to personal political posturing (for the next re-org) instead of value creation. These organizations may be better poised to anticipate and respond to external opportunities and challenges, but I am not convinced. In one such client enterprise, a paralysis in accomplishing change resulted from the relative impermanence of people and groups.

And some organizations use matrix structures. While not inherently dysfunctional (some matrixes actually do work!), this approach requires staff members and managers to hone their political skills to navigate the challenges of conflicting leadership messages. There is no doubt that matrix organizations are less efficient, due to the overhead cost of overlapping (and sometimes competing) management structures.  

The controlling principle for answering the ‘Where’ question should be ‘Structure Follows Strategy.’ Look at the newly-hatched strategy at the enterprise level. Will success require different parts of the organization to work closely together across boundaries? Will existing political rivalries inhibit execution? If you could start from scratch, would you draw the organization chart the same way it is now? If you are answering yes to any of these questions, it may be best to use the cascading structure to blur or erase the existing boundaries, and create ad hoc overlay structures that align with strategic themes and objectives. Such ‘theme teams’ have proven to be very effective in tearing down walls, creating better cooperation and partnerships across the enterprise. While it may not be possible to erase and redraw the incumbent organization structure, these cross-functional teams may become the primary leadership structure for accomplishing change, and can render the old silos irrelevant.

Sound scary? You bet. But the default approach of aligning strategy to the existing structure will serve to reinforce the existing structure, no matter how sub-optimal it may be. Cascading strategy can be a powerful tool for effecting (or inhibiting) positive change in an organization’s structure.

Another aspect of the ‘where’ question is about depth. Of course, the size and diversity of the organization should be a key determinate, but as one goes deeper, the size of each group with its own BSC shrinks. It is impractical to have a BSC for a very small number of people, when the overhead of sustaining that BSC represents a significant fraction of the labor pool in the group. It is better to invest energy in integrating the strategy management system with individual employee performance management processes, in partnership with front-line managers and the HR organization. But that is a topic for another post. The best guidance on depth is to go only as deep through layers of the organization as absolutely necessary to ensure alignment and staff engagement. As the number of BSCs multiplies, so does the overhead cost of the strategic management system.

A final note about organizational geography: Some organization have such highly-entrenched functional and business units and hands-off management style that strategy at the enterprise level is too generic to offer meaningful guidance to subordinate units. An alternative approach to top-down cascading that has worked in these cases was dubbed “middle-up-down” by one of my colleagues. This approach entails enabling the subordinate units to create provisional strategy maps and measures and feed them up to enterprise-level leadership for a process of review and reconciliation, followed by a downward cascade that is informed by the reconciliation. Please comment below if you’d like to learn more about this approach in a future posting.

Next: The Final Three Questions

Many cascades follow a basic pattern: a BSC (consisting of a strategy map and associated measures) is developed for the organization as a whole, then subordinate maps and / or measures are developed for each subordinate business unit and support organization (such as Information Technology and Human Resources). But the predictable pattern quickly disappears. Subordinate organizations may be required or allowed to choose to replicate or adapt the higher level strategy map and measures, or given the freedom to create an entirely new BSC. Unfortunately, there is often too little time and energy invested in understanding and making good decisions about cascading, and there are no well-established rules. The objective of this post is to outline the key questions that should be considered when planning to cascade BSCs in any organization.

Ask the ‘When’ Question First

Before considering any of the other questions, leaders should consider the timing of cascading. In their enthusiasm to leverage a newly-hatched strategy map, they may mandate that business unit cascades be completed quickly; unsurprisingly, rapid cascading is the default recommendation of outside consultants (mea culpa). But rapid cascading has its drawbacks. The enterprise-level strategy map may lose relevance in the shadow of those created for business units. That outcome is probably okay if the enterprise is operating as a holding company, but more often than not, the enterprise seeks to leverage strategic objectives across business and operating units. When this is the case, there is a large benefit in broadly socializing the enterprise-level change agenda across the entire organization before enabling the subordinate units to participate in the cascade. Not only does this enhance the credibility of the change program, but it avoids the risk of forcing a subordinate organization to cascade before its leaders are ready.

But the best reason to manage the timing of the cascade is to enable leaders to understand and carefully consider their approach to cascading, and make informed decisions. But it is easy for leaders to assume they instinctively know the best way to cascade, and to want to sustain the momentum of their initial work.

Of course, the vary real risk in not rapidly cascading is to lose executive level buy-in for the change program. Leaders should be encouraged to publicly commit to a cascading process, but avoid releasing details of the cascading approach. Public commitment reduces (but does not eliminate) the risk of losing support, and buys the critical time and flexibility necessary for leaders to make those informed decisions.

Reach Agreement on the ‘Why’ Question

Leaders who have agreed to undertake a change program using the BSC will easily agree that cascading is a good idea. But challenging them to describe their expectations of cascading will probably yield different answers and valuable insights into each leader’s management style. Why cascade? The easy answer comes from Kaplan and Norton’s Strategy-Focused Organization: to align the organization to the strategy. But what does alignment mean? To some, it means instituting a control and feedback regime that entails populating the measures on the enterprise scorecard. To others, it means enabling and empowering subordinate units to escape from bland and imprecise objectives at the enterprise level, and to “get it right” for the subordinate organization. Others may only see the cascaded BSC as an emblem of organizational status, and are most likely to volunteer their subordinate organization to ‘go first’ in leading the cascading effort. Some may confuse or conflate the optional cascading process with the necessary change communication program, as mentioned above.

While there is some merit to each of these expectations, it is vital that leaders express and agree to their expectations for the cascading process. A shared answer to the ‘Why’ question informs the remaining decisions on cascading, and enables executives’ expectations to be realized.

Next: The ‘Where’ Question

Of course, before any leadership team can begin talking about its strategy, the team must be in agreement about the strategy’s content. When facilitating strategy development session, I try to end the session by having one or more of the leaders stand up and present the strategy to the rest of the team in a brief narrative. There is no script, and the first few presentations may be clumsy or unclear as leaders search for their own words to convey strategic objectives, and the cause-and-effect relationships that link them. When things don’t quite make sense, small tweaks to the strategy message may result. Leaders quickly build upon each other’s presentations to deliver a smooth and compelling story about the strategy.

What happens next is crucial. Leaders must overcome any instinct they have to keep the newly-hatched strategy under wraps. Driving change requires that each member of the organization not only understand the destination, but the rationale, and the path they are expected to take. In short they must know where they are going, why they are expected to go there, and how they are going to get there. And the communication cannot be passive. Posters, e-mail, newsletters, etc., may be used to reinforce the strategy message, but cannot be seen as the primary way to get the word out.

Of great importance to the communication plan is how each member of a the audience first experiences the strategy message. This strategy map or other vehicle does not speak for itself; it requires patience and thoughtful and thorough presentation by a credible messenger. An easy way to think about this is the first time one sees a strategy message, it should be vertical; projected on a screen so that someone in the know can point to it while telling the story of strategy.

Listen, Learn, and then Teach

The first presentation of strategy need not go into great detail, but should be focused on grabbing audience members and increasing their appetite for a richer understanding of the strategy message. If a strategy map is being used, it is wise to start with its structure (perspectives and themes), before diving into the detailed strategic objectives. This may be done in a large group setting, but should be followed soon by a deeper discussion of the strategy in a setting designed to engage audience members in a dialog with their leaders. This second experience of the strategy enables audience members to internalize the meaning of the strategy, and begin to understand it’s relevance and meaning to them.

A great way to expand the communication process is to increase the number of messengers. I have facilitated communication kick-off meetings in which the organization’s leadership team first presents the strategy to senior and middle managers, and then, in small-group breakout session, each manager is then asked to stand up and present the strategy as well. In a single workshop session, every one of those attending goes from hearing the strategy for the first time to being able to comfortably present it to others. They become agents of change! As one of my favorite clients summed it up: First you listen, then you learn, and then you teach.

Strategy Communication is an Ongoing Process

Enabling an army of messengers to present the strategy is only the first step in creating an ongoing program of strategy communication. Once the strategy message itself has been socialized across the organization, the leadership can then credibly introduce and promote the performance measures that will motivate the necessary behaviors, and provide feedback about progress. Measurement provides the basis for periodically revisiting the strategy message itself, and keeping the change agenda ‘front of mind’ among the organization’s members.

One of my client’s leadership teams agreed to start every internal meeting with a brief look at their strategy map, to ask the question out loud, “Which of our strategic objectives is being served by this meeting?” Not only did the leaders integrate the language of strategy into everyday interactions with their teams, but the approach resulted in more focused meetings. It was a great way to make the change program part of everyone’s job in the organization.

Think about your organization. Can you, and everyone around you, summarize the strategy? Are they saying the same things? How often do leaders reinforce the message of strategy and change? Is the change agenda central to everyone’s thinking, or is it viewed as simply a passing fancy of management? How long has it been since you’ve attended a meeting devoted only to strategy? Your answers may cause you to revisit your strategy communications process.

Please share your own experiences below.

One key benefit of having an outsider facilitate an organization’s change process is the outsider’s objective viewpoint. In preparing to facilitate a strategy development workshop, I insist on prior, separate, one-on-one interviews with each member of the leadership team charged with developing the strategy. My aim during these interviews is not to promote a particular change agenda, but to understand the extent to which the members of the team have identical, aligned, or divergent beliefs and values about the change agenda for the organization. In short, I look for consonance or dissonance (wonderful musical terms that apply here as well) in the strategic song of the leadership team. The understanding I gain is of vital importance when facilitating the team as a whole.

Identical Expectations for Change

During interviews, when each member of the leadership team is not only expressing the same aims for the organization, but using the exactly the same words and phrases, a healthy skepticism is in order. It may be tempting to view the harmony as good news; it implies a team that is in agreement on the strategy and ready to move into execution, and sometimes this is actually the case. But it may also indicate the insidious disease of groupthink, a behavior demonstrated by group members who try to minimize conflict and reach consensus without critically testing, analyzing, and evaluating ideas. Groupthink may result from complacency in a successful organization, the charisma or power of the group’s leader, or anxiety from being in an organization where dissent is punished. In these organizations, the facilitator’s role is to gently prod leaders to express their own understanding of the dogma, to ensure that each has understood and internalized its meaning, rather than just parroting the words. In a few cases, it has even turned out that members of a client’s leadership team have actually met privately before the interviews to “get their stories straight” for the facilitator.

Aligned Expectations for Change

The second condition is less likely to occur, and yet probably the healthiest. Leaders who hold the same basic values and aims for the organization may be seen as having aligned expectations. These leaders have strongly-held ideas about the direction of the organization, and demonstrate their internalization of the ideas by using their own language to express them. This is a good indication of a culture of critical thinking in the leadership team, and perhaps the organization as a whole. When I encounter the condition of aligned expectations, my aim is primarily to identify an essential shared vocabulary for change;  the few critical words that encapsulate the shared agenda that will best enable the leadership team to communicate it across the organization, perhaps in a strategy map.

Divergent Expectations for Change

It is easy to imagine that leaders with somewhat or radically different ideas about the necessary direction for the organization are out of touch with each other, flailing under the stress of a failing organization, or simply lack the leadership they need to gravitate to a central set of ideas. While this is likely to be the case, this result may also indicate that the organization itself has a fragmented value proposition, or that the organization level of the leadership team is operating as a holding company, with little or no synergies among its constituent parts. But a diversity of beliefs may also represent the wisdom of independent thinkers whose unique perspectives will be valuable when integrated. The challenge when facilitating this type of leadership team is to distill a shared consensus for strategy that incorporates the best ideas from the team, and to shelve or discard some ideas in pursuit of a tight, coherent strategy. The facilitator should not pass judgment on each ideas, but instead enable members of the team to advocate their unique views to colleagues to gain their support. While the biggest risk in this scenario is failing to reach consensus, there is also considerable risk in losing a good idea in the name of achieving that consensus. But as a wise client once told me, “the essence of strategic planning is choosing what not to do.”

A Case for Objective Facilitation

Organizations engaging in a new or ongoing strategic management process may be tempted to delegate strategy development to a staff member, or arrive at strategy without the benefit of objective facilitation of the leadership team. This approach is penny wise, and pound foolish. It is most likely to result in a change agenda that reinforces a comfortable status quo, or is so fragmented as to be incomprehensible by employees and stakeholders. Please share your comments and experiences below.

Agility

Of the four domains, this one was the most difficult to name. I named it ‘Agility,’ not because of its precision as a word in describing the domain concept, but because it does a pretty good job of describing a bundle of fuzzy expectations for the performance of the IT organization.

While Agility certainly has to do with timeliness, timeliness means more than responsiveness. Simply satisfying requests more quickly than in the past is insufficient for the expectation of agility. Agility also pertains to the ability of the IT organization to change direction quickly, to reprioritize its work, to react to and even anticipate changes in the enterprise, industry, and or technology domains in such a way that opportunity can be seized and defenses mounted against threats. It is here under this concept of agility that business unit managers (BUMs) express their frustration that “IT just doesn’t understand our business.” After all, each BUM operates in a fast moving competitive environment, so from his or her standpoint, shouldn’t the IT organization be able to react and anticipate as quickly as the environment is changing?

IT leaders genuinely want to be more agile. But the nature of the external cost controls and internal disciplines that must be imposed by a centralized IT organization naturally tend to impair the IT organization’s agility. So while IT leaders understand the need to apply and adhere to policies for system design and development, information management and security, and reliability of processing infrastructure, the bureaucracy that these controls entail inevitably makes IT seen as plodding and unresponsive.

Innovation

Closely related to the domain of agility is Innovation. BUMs and IT  leaders often disagree on where innovation in the enterprise should take place. BUMs contend that only they know their business well enough to imagine ways in which technology can be applied to create new value. Software vendors align with this belief, and market their wares directly to the BUMs, circumventing IT leadership.

Meanwhile, the IT leaders believe that the IT organization exists to concentrate specialized knowledge about technology in the enterprise, and contend the their specialists are best equipped and best informed to anticipate and propose new applications of technology.

Of course, both are right and wrong at the same time. Each group brings unique knowledge to the challenge of innovation, but it is only through a trusted partnership between IT and business units that innovation can effectively take place. Given the challenges and mismatched expectations of cost, quality, and agility, it is unsurprising that this partnership in innovation occurs so rarely.

Agility and Innovation are the Domains of Contribution

Satisfactory performance in the domains of agility and innovation are necessary for the IT organization to be seen as a true contributor to the task of realizing enterprise strategy. But an excessive focus on these two domains is risky if the enterprise satisfaction with the hygienic domains of cost and quality has yet to be achieved; the IT organization simply has no credibility to innovate if costs are seen as high and quality is lacking.

To be effective, IT organizations must manage a balanced focus on each of the four domains of Cost, Quality, Agility, and Innovation.

 Next: The stage-maturity model of strategic alignment in the IT organization.

Cost

When asked about the information technology organization, senior executives are genuinely puzzled at cost increases over time. They certainly understand that some costs for information technology, especially hardware, goes down over time. Yet IT spending in the enterprise goes up continuously, and while they intuitively understand the benefits of information technology they lack a quantified understanding of those benefits. They’re frustrated with the IT leadership who construct complex, and at times incomprehensible, models of IT ROI (return on investment).

As a result, IT executives feel continuous pressure from senior executives to reduce overall spending. They’re painfully aware that any dollar not spent on information technology drops to the bottom line profitability for the firm. IT executives aggressively pursue cost savings where they are available, but they have little control over the increased demand for technology services from business unit managers (BUMs). So the IT executives are caught in the middle of a squeeze: pressure from senior executives to reduce spending, in almost direct opposition to pressure from BUMs to increase the provision of technology services, without regard to the impact on the firm’s aggregate spending on IT.

Quality

The domain of quality in information technology performance is a moving target. BUMs are painfully aware of the implications of low quality and service delivery. Often the failure of a single component such as a network, a server, a database for, or another piece of critical hardware results in periods of reduced or no productivity for large numbers of end-users and customers. In organizations where fundamental availability is an issue, the predominant topic of discussion between ITO leadership and BUMs is system availability.

When systems become more reliable, expectations for IT quality diverge; while nearly everyone is concerned about system security and data integrity, some BUMs mingle the domains of cost and quality, describing a belief that a high quality system is the one that costs them less. Others are focused on the idea of responsiveness. This can be as simple as how quickly is the phone answered when IT receives a phone call for support, the time it takes to actually resolve an end-user’s problem (such as a failure of a desktop computer), or a richer set of expectations about functionality of applications, ability to move information between disparate systems, and usability of end-user interfaces such as web sites. Unfortunately for IT leadership, the satisfaction of one quality issue does little to satisfy the overall expectations of quality; the BUM or the end-user simply shifts attention to their next most important issue.

Cost and Quality are the Domains of Competency

Satisfactory performance in the domains of Cost and Quality is merely hygienic; it is expected of every competent IT organization. But achieving objectives for Cost and Quality are absolutely necessary, but not sufficient, to realize the full strategic potential of IT in the enterprise.

Next: Agility and Innovation

I’ve asserted in this blog that the purpose of all organizations is to create value, whether they are for-profit businesses (that create value for customers and owners of the business), or government and non-profit organizations (that create value for citizens, communities, and society). Reading from bottom to top, successful strategy maps describe how an organization creates value. While the four perspectives described by Kaplan and Norton (Learning and Growth, Internal Business Process, Customer, and Financial) have worked well in for-profit businesses (in many hundreds of examples), the perspectives have often been renamed by leadership teams.

The Vertical Dimension: From Perspectives to Value Creation

Most often renamed has been the Learning and Growth perspective – sometimes as “People and Knowledge,” a clearer statement of the original intent. In their more recent writings, Kaplan and Norton have broadened that intent by applying multiple labels to the bottom perspective, such as Human capital, Information capital, and Organizational capital. The next perspective in the sequence had received a variety of names, but all are about the internal processes of the organization. The top two perspectives (originally named Customer and Financial) are sometimes renamed to agree with the organization’s language preferences (e.g. ‘Partner‘ for Customer, and ‘Business Results‘ for Financial). These may seem like trivial differences, but the precise language on the strategy map has been very important to the leaders creating them.

It is the top two perspectives that have proven most problematic for non-profit and government organizations. While nearly all have recognized that having a perspective named Financial at the top of the map is simply inappropriate, some have retained a Financial perspective at the top (or moved it to the bottom of the map)in a mis-guided attempt to remain true to Kaplan and Norton’s original writings. Most other of these organizations have simply renamed (and sometimes consolidated) the top two perspectives to reflect those who benefit from their value creation.

Generically, all these organizations develop and engage their resources (such as people, information, and knowledge), to perform actions that create immediate value for a targeted set of stakeholders (such as customers or citizens), which results in the creation of consequential value for stakeholders (such as investors or members of a community). Rather than attempting to force-fit the organizations’ strategy into a predefined set of strategy map perspectives, the process of strategy map design should begin by identifying the key resources it employs and explicitly identify, segment, and name the stakeholder groups who receive value from the organization. The perspectives should be simply structured and named to reflect the organization’s unique value proposition. This is the approached that most experienced facilitators already use today in practice. There is nothing revolutionary about this proposal; it simply codifies what often occurs.

The Horizontal Dimension: From Themes to Organizational Change

There has been far more diversity in approach to organizing strategy maps on the horizontal dimension. Kaplan and Norton’s early work proposed a left-to right sequence based on a value chain from “customer need identified” on the left to “customer need satisfied” on the right that was seldom adopted in practice. As mentioned in the earlier post, Treacy and Wiersema’s three disciplines of market leaders has been a more successful organizing structure, but not consistently applied from left to right: examples published by Kaplan and Norton have shown an Operational Excellence theme place at the left, center and right of different maps. In short, there is no dimension that has consistently applied to the horizontal dimension of strategy maps.

But there is a fundamental organizing concept: change. The essence of strategy is change, and change is necessary for the survival of every organization. Maps that only capture the way in which an organization creates value today and contain objectives for process and quality improvement can hardly be called strategy maps; they don’t effectively paint a picture of a future different than today. Successful strategy maps present an image of a ‘desired future state’ for the organization; how the organization aspires to create value in the future. The view of the future is easily segmented into at least two broad themes; what we have to change (or ‘fix’) in the near term, and what we wish to be in the long term (usually between two to five years in the future). Maps that I and other practitioners have facilitated around the Competency to Contribution and the Treacy and Wiersema-influenced motifs of Operational Excellence (near term), Customer Intimacy (intermediate term) and Innovation (long term) have loosely followed this left to right thematic segmentation.

Like the proposal above to name the horizontal perspectives in the context of the organization’s value proposition, I propose that during the strategy map design process, the organization’s leaders categorize their objectives (in the Resources and Actions regions on their maps) as near-, intermediate-, or long-term, and name the themes to reflect this. As an organizing discipline for the horizontal dimension, this will make clear the change imperative of the strategy; and properly reflect the essential purpose and necessity of the organization; to create value and to change.

Practitioners of balanced scorecard and strategy mapping facilitation are especially invited to comment.

Gawande’s article follows his curiosity and research into regional disparities in health care spending; why some places spend far more (per Medicare enrollee, an approximation of overall spending) than others, without significant differences in overall public health or patient outcomes. His research focused on the town of McAllen, Texas, “the most expensive town in the most expensive country for health care in the world,” where annual Medicare spending per enrollee (in 2006) was around $15,000, almost twice the national average.

Any attempt to summarize the article here risks injustice to Gawande’s excellent research, analysis, and writing, but here are a few key points to know if you’re unable to read the article:

• Demographics don’t explain regional disparities. McAllen is similar to El Paso County, Texas in terms of public health, and both health care markets have lower rates of smoking and heart disease than the national average. But El Paso’s annual per enrollee Medicare spending was $7,504, about half that in McAllen.
• The quality of treatment offered, and the quality of care received is no better(and sometimes worse) in McAllen than in other, lower cost health care markets.
• Malpractice is not a factor. Overutilization of service explains the difference in costs. Compared with patients in El Paso and nationwide, patients in McAllen got more of pretty much everything-more diagnostic testing, more hospital treatment, more surgery, and more home care.
• If national health care costs were brought down to the level of such areas as Rochester, Minnesota, or Seattle, Washington, or Durham, North Carolina (where costs are below the national average and quality measures are high), Gawande says, “Medicare’s problems (indeed, almost all the federal government’s budget problems for the next fifty years) would be solved.”
• Health-care costs ultimately arise from the accumulation of the decisions doctors make about which services and treatments to order. Some doctors think about money in terms of covering their costs, and that’s about it. Some think about money as a way to improve patient care; that money can be used to hire additional staff, employ new technologies, or offer expanded hours. And some doctors think about money as a revenue stream to be maximized. McAllen seems to be a community with a greater share of doctors with this third view.

Aside from the highly-charged political implications of Gawande’s article (which is certain to be disputed by some stakeholders in the debate), looms a larger question: how can change be driven not just in a single organization, but across an entire sector of the economy?

As we watch the political and policy debate unfold over the next several months (some of us are old enough to remember the failed reform efforts in 1992-1993), we’ll see a macrocosm of the challenge of change in a single organization. Stakeholders will defend their interests, and agents of change will seek to overcome those resisting change. Well-meaning and self-interested parties will offer a variety of alternatives that won’t easily be reconciled. Commentators will identify “winners” and “losers” in the debate.

At 17% of its GDP, the U.S. has by far the highest costs for health care in the world, compared with 12% for the next most costly nation. High cost doesn’t buy high quality; U.S. outcomes are lower than elsewhere, with many un- and under-insured persons having little access to lower cost preventive care. Change won’t be easy or pretty, but it will be necessary. As agents of organizational change, we will have much to learn and apply from close observation of this change process. I look forward to your comments and debate in this space.

Their early focus on the perspectives and the measures was an important step in gaining the buy-in of the early adopters of the BSC concept who were predisposed to focus on measurement. As organizations around the world began using the BSC (with mixed results), the strategy map moved much closer to the center of the BSC concept. With Kaplan and Norton’s third BSC book, Strategy Maps, the centrality of the map to the BSC concept was properly acknowledged.

In developing hundreds of strategy maps for an incredible diversity of organizations, my colleagues and I arrived at some consensus about the elements of good strategy map design. In many cases, we also had opportunity to review and comment on strategy maps that had been developed by the many organizations that weren’t our clients, and this enriched our understanding of how these organizations chose (and sometimes failed) to express their strategy. Although much was learned, strategy map design continues to evolve as a BSC discipline.

In practice, the majority of strategy maps have been represented in landscape format on a single page or screen image. Strategy maps are best designed in a facilitated workshop with every member of the organization’s leadership team. The leaders develop and agree to strategic objectives (brief statements of intent that comprise the strategy) and place them in the visual space according to a structure guided by the facilitator.

Most maps has generally been the repository of around 20 to 30 strategic objectives. Some organizations have successfully had far fewer of these objectives, but maps with few objectives have mostly suffered in clarity. Maps with more than 30 objectives have simply been too hard to read and have overwhelmed those not part of their creation.

Kaplan and Norton’s four perspectives have been quite successful to divide the vertical space of strategy maps of for-profit firms (although the perspectives are often renamed), but less so in government organizations and non-profits where primacy of financial outcomes isn’t appropriate. Variants on the original model rearrange and often rename the four original perspectives, but a consistent structure for non-profits simply hasn’t been settled.

While the four-perspective model has worked especially well to divide the vertical space on the page, there has been far less consistency on a horizontal structure. In their early work, Kaplan and Norton proposed a sequence of vertical towers containing a cause and effect sequence of objectives spanning all four perspectives, but this has been problematic. Strategic objectives often don’t fit as easily into top-to-bottom themes, and this too rigid structure has been an impediment to the design process. Arrows showing cause and effect relationship between objectives often crossed between themes, contibuting to a visual jumble on the page.

A somewhat more successful approach has been to apply a thematic structure only to the customer and process perspectives (or even the process perspective alone), and one of the best structures was influenced by Treacy and Wiersema’s The Discipline of Market Leaders. This approach divides the horizontal space into three roughly equal themes of operational efficiency, customer intimacy, and product or service innovation (which are evolved from Treacy and Wiersema’s disciplines of Operational Excellence, Customer Intimacy, and Product Leadership). While these disciplines fit many organizations, alternatives (such as my own Competency to Contribution structure) have also proven successful.

Of course, each organization’s strategy map must properly reflect it’s unique circumstances and intent. Carefully designed structures have proven a necessary prerequisite to facilitating the map development process. In the next post, I propose a new universal structure for strategy map design that builds upon the good map designs already done, and can more effectively guide map design for every organization.

A brief detour: when thinking about behavioral change in the workplace, you may be reminded of the Hawthorne Effect, a term referring to a famous experiment in the 1920s where factory workers productivity was found to improve when the lighting level in the factory was increased. Paradoxically, productivity also improved when the lighting level was subsequently decreased. The summary explanation for the effect suggested that the productivity gain among the factory workers was simply due to the motivational effect of the interest being shown in them. Well, there is a new development: according to an article in this week’s Economist, “idiosyncrasies in the way the experiments were conducted may have led to misleading interpretations of what happened.” In other words, the Hawthorne effect may not be true.

Notwithstanding new doubt about the Hawthorne effect, a compelling example of the power of measurement to change behavior comes from the world of medicine and public health. As detailed in an extensive 2006 New Yorker article by Atul Gawande, an unlikely revolutionary named Virginia Apgar transformed obstetrics and the nature of childbirth by devising a simple standard for scoring the health of a newborn baby at one, five, and sometimes ten minutes after birth. According to the New Yorker article (emphasis added):

The score was published in 1953, and it transformed child delivery. It turned an intangible and impressionistic clinical concept-the condition of a newly born baby-into a number that people could collect and compare. Using it required observation and documentation of the true condition of every baby. Moreover, even if only because doctors are competitive, it drove them to want to produce better scores-and therefore better outcomes-for the newborns they delivered.

Before Apgar scoring, babies delivered prematurely and with critical neonatal problems were often assumed to be not viable, and simply left to perish. The Apgar score, and the competition it produced, motivated doctors to take already understood steps to aid low-scoring newborns. The impact on neonatal mortality and survival has been astonishing. Again from the article:

In the United States today, a full-term baby dies in just one out of five hundred childbirths, and a mother dies in one in ten thousand. If the statistics of 1940 had persisted, fifteen thousand mothers would have died last year (instead of fewer than five hundred)-and a hundred and twenty thousand newborns (instead of one-sixth that number).

A simple measurement changed the behavior of medical professionals, and by extension, the hospitals in which they worked. The outcome of the behavior change is the survival of millions of babies. Carefully chosen and communicated measures have the power to change behavior and outcomes. This is the foundation for the design of every change program driven by the balanced scorecard.

The decline and fall of General Motors

Detroitosaurus wrecks

The lessons for America and the car industry from the biggest industrial collapse ever

The demise of GM had been expected for so long that when it finally died there was barely a whimper. Wall Street was unmoved. Congress did not draw breath. America shrugged. Yet the indifference with which the news was received should not obscure its importance. A company which once sold half the cars in America, employed in its various guises as many people as the combined populations of Nevada and Delaware and was regarded as a model for managers all over the world has just gone under; and its collapse holds important lessons about management, about government and about the future of the car industry.

GM’s architect, Alfred Sloan, never had Henry Ford’s entrepreneurial or technical genius, but he had organisation. He designed his company around the needs of his customers (“a car for every purse and purpose”). The divisional structure he created in the 1920s, with professional managers reporting to a head office through strict financial monitoring, was adopted by other titans of American business, such as GE, Dupont and IBM before the model spread across the rich world.

Although this model was brilliantly designed for domination, when the environment changed it proved disastrously inflexible…

Audience segmentation is the process of first defining the universe of stakeholders, and then dividing that universe into groups according to the intended approach to the communication of the messages. 

Note that we start with stakeholders. Stakeholders are simply those groups of people who (may) have a reason to care about the organization’s strategy. A for-profit organization may begin to describe its stakeholders as employees and customers, but a more careful view might include suppliers, owners (shareholders), and members of the communities in which the firm operates. Stakeholder analysis for a government organization is likely to be more complex. Stakeholders for a state agency providing a service (e.g. drivers licenses) may count drivers, employees, partner agencies (e.g. police departments), private enterprises (e.g. insurance companies), politicians, and legislators among its stakeholder groups. 

Stakeholder analysis is not just important for planning communication, it is an important part of the strategic planning process. Don’t assume that your organization’s leaders have a shared understanding of the structure and membership in the stakeholder community; some of the most valuable leadership team efforts in the strategic planning process is coming to agreement about stakeholders.  It is easy to see that stakeholder groups overlap. An employee may also be a stockholder, and a customer of the organization. The stakeholder approach to communication planning is a necessary prerequisite to ensuring consistency of messages across overlapping groups.  

Typically, the audience segmentation effort is focused on employees, whose understanding of the change agenda is absolutely vital to its success. Segmenting the employee population is generally done on the dimensions of job level and ‘organizational geography‘ – the physical and logical place for the group in the organization. 

The drawing above shows a typical segementation for a business unit inside a corporation, adapted from an actual client plan. The executive leadership team recognized quickly that customers and corporate executives would need to receive a high-level understanding of the change agenda, and that messages needed to be delivered differently to field and home office employees. It is easy to see that some groups are combined; while mid-level and supervisory management in the home office are segregated, they are treated as a single audience in the field. This is in line with the general guideline to identify the smallest number of unique audiences necessary to effectively communicate with each. Starting with a more granular view benefits the analysis, but audiences may be combined as the planning effort proceeds. 

Our planning framework now consists of two dimensions; messages and audiences. The planning process continues with the design of a message plan for each audience, which of course will be covered in a subsequent post.

Mr. Chopra says that his top goal is economic development using government policy to create jobs and business around technology. “My job is to serve as the innovation platform champion in addressing private market opportunities in support of public priorities.”

When asked about his goals for the job, Mr. Chopra’s cited four objectives that were presented recently to the White House: 

• Economic growth through innovation
• Addressing presidential priorities through innovation platforms
• Building the next-generation digital infrastructure
• Fostering a culture of open and innovative government 

What strikes me about these goals is how similar they sound to those expressed by corporate CIOs, at least before the economic downturn. All one needs to do to echo typical corporate IT strategy is change the wording a bit, e.g. “Addressing enterprise strategic priorities….” and “Fostering a culture of openness and innovation.” 

Chopra’s top idea for economic growth is to change how the government looks at the money it spends on research and development. Rather than purely thinking about basic research, the government should focus on investing in technologies that can be developed. A first step is to find ways to actually measure how much research is being commercialized. “There is an implicit assumption that R.&D. investment will lead to job growth and economic success,” he says. “The measurement question will lead us to think about how do we begin to assess the outcomes.”

Chopra’s talk of platforms echoes the Silicon Valley concept that companies become most valuable when they offer services that other companies integrate with. Mr. Chopra wants the government itself to use the latest tools and technologies, just as the Obama campaign was quick to use social networking and other trendy techniques.

Intrigued? There is much to learn about Mr. Chopra, including this admiring review of his qualifications, and a worthwhile 50-minute video (below) of a recent speech talking about technology and government while with the State of Virginia.

According to the NYT article, Chopra proposed two measures for his own performance. First: “Can we achieve the president’s goals better, faster, cheaper through technology?” And second: “How many new billion-dollar businesses can we create by unlocking government data or government policy?”

I admire his ambition, and his ideas. Having worked closely with CIOs in state and federal government, I appreciate the magnitude of his challenge of driving change within government IT organizations. Godspeed, Mr. Chopra.

Let’s consider a simple example. In this purely hypothetical example, my wife is judging my performance in our organization (our family) by two measures: the number of calories I eat each day, and the number of days each week I exercise for at least thirty minutes. She’s even established targets for my performance; no more than 2,000 calories in a day, and at least three exercise periods a week. On the basis of those two measures, we can infer that she wants me to eat smart and to exercise. But why is my performance being measured this way? (If you have a good punchline, please leave it in the comments below.)

Of course, we could conclude that my wife wants me to lose weight. So the hypothesis implied is that if I eat smart, and if I exercise, then I will lose weight. But losing weight is only an intermediate objective. The complete cause and effect logic is far easier to show in a picture than with just words.

Each of the boxes in the picture is a strategic objective; a concise answer to the question, “What do I have to do to be successful?” By arranging the objectives with arrows as shown, we can easily read the hypothesis of cause and effect that comprise the strategy. These strategic objectives are the building blocks of strategy maps, and careful selection and arrangement of them can create an amazing level of understanding of an organization’s strategy. But reading a well-drawn strategy map is far easier than creating one.

After one especially exhausting strategy map session (usually an all-day affair), one of my clients wisely observed that “the essence of strategic planning is choosing what not to do.” In our example above, imagine starting out with only the outcome objective (Retire in comfort). My wife and I might brainstorm a series of alternative objectives that will enable us to achieve that goal (increase life insurance?!). But it would be impractical and perhaps even contradictory to simultaneously pursue all of the imagined ways to achieving the outcome objective. Thus, by ruling out alternatives, we focus the strategic energy of the organization (my family), on a few objectives that we select based on our hypotheses of cause and effect. Just remember – this is only a hypothetical example.

The power of the strategy map, and ultimately the Balanced Scorecard, is that by narrowing the description of strategy to only a few objectives on a single sheet of paper, we create a shared understanding of the direction in which we are aiming the organization. Much more about strategy map design in future posts.

Working with a client back in 2001, I constructed a framework for planning communication around strategy. Over the course of several engagements with a variety of client organizations, my colleagues and I were able to refine this framework, and prove its effectiveness. We also learned a lesson from our clients; upon reflection they all said that given the chance to do it all again, they would have started earlier and invested more time in their strategy communications programs.

At the core of the framework is a sequence of five messages that are shared with every member of the stakeholder community for the strategy. While it is easy to see that employees are at the center of the stakeholder community, they don’t necessarily define the entire community. Defining and segmenting the audience for strategy communication program is the subject of the next post on the topic of communication planning.

In short, the five messages are:

1. We need to change
2. Our vocabulary of strategy
3. This is our strategy
4. Our strategic performance
5. Your role in achieving our objectives

The ‘A’ message (Our need to change) needs to come from the credible leadership of the organization, and must create the sense of urgency needed to break through the natural complacency and resistance to change in the stakeholder community. Most challenging about the ‘A’ message is grabbing and holding the attention of an audience whose fatigue with inspirational messages from the organization’s leaders may result in low reach and retention of the message.

The ‘B’ message (Our vocabulary of strategy) introduces the concepts and terms that the organization will use to describe its strategy. An important part of developing this message is to understand the language of change in use in the organization. There may be a variety of terms used to describe a strategy, a strategic objective, a target, performance measurement, etc. While the BSC discipline prescribes standard terms for these concepts; it is most important to present a language that will be clear and unambiguous, consistently used across the organization, and accessible to every member of the stakeholder community. Embedded in the ‘B’ message is a subtext; “We know what we’re doing” that is essential if the leadership’s track record in driving change is poor. The ‘B’ message is especially challenging in very large organizations whose sub-cultures and local vocabularies may be invisible to those planning the communications.

The ‘C’ message (This is our strategy) is at the heart of the communication program. Although it can revolve around a BSC strategy map, some organizations choose to present their strategy in a way that is less intimidating than a complete BSC strategy map or other technique may be to those new to the idea of strategy. Organizations skipping the ‘A’ and ‘B’ messages in their haste to present the ‘C’ message will be met with apathy and limited comprehension of the strategy itself. The ‘C’ message benefits most from repetition; introduced by senior leaders, reinforced by mid-level management, and referenced through a variety of channels such as company intranet, newsletters, posters, etc. A key to the success of the ‘C’ message is finding ways to engage stakeholders in the message content, so that they internalize and understand the content of the strategy itself.

The ‘A’, ‘B’, and ‘C’ messages can be introduced and reinforced early in the change program; once the strategy itself has been agreed to by the leadership team. But the ‘D’ message (Our strategic performance) plays out over time. In its most basic form, the ‘D’ message consists of sharing the BSC measures and targets with members of the stakeholder community, but the effectiveness of the ‘D’ message is enhanced by carefully packaging it in the context of frank leadership reviews of performance successes and shortcomings. The ‘D’ message changes as actual performance is recorded, and is typically shared with stakeholders on a quarterly timetable. 

The ‘E’ message (Your role in achieving our objectives) is the vital link between the organization and the individual. In some cases, the ‘E’ message is appropriately targeted at groups or teams of stakeholders whose contributions are similar; but more often the ‘E’ message is integrated and imbedded in the performance planning relationship between each employee and his or her immediate supervisor. Delivering the ‘E’ message effectively requires careful coordination with existing management processes and structures, such as the HR organization.

Often, those planning strategy communication are inclined to skip the careful planning of messages described here, and jump quickly to selecting communication channels (“let’s make a video!”) without also carefully considering the need to understand and segment the stakeholder community so as to target messages effectively. The necessary task of audience analysis and segmentation is covered in the next post on the topic of communication planning.

Somewhat less familiar, but no less important and durable has been Frederick Herzberg’s Motivator-Hygiene, or Two-Factor theory, published in 1959.  Herzberg elaborated Maslow’s hierarchy by classifying needs as either satisfiers or dissatisfiers. In the context of employment, salary and working conditions can only cause dissatisfaction (when not present), and only the presence of such higher-level psychological needs as achievement, recognition, responsibility, advancement, and the nature of the work itself can result in job satisfaction. The theory says that to improve job attitudes and productivity, managers must recognize and attend to both sets of characteristics and not assume that an increase in satisfaction leads to a decrease in unpleasurable dissatisfaction.

What do these theories have to do with strategy? In the same way that an employee has certain expectations of his or her job, so does a group of stakeholders have a set of expectations for an organization that can be seen through Herzberg’s two-factor lens. And the leaders of an organization are wise to understand and classify those expectations.

For example, look at the relationship between a shared service provider (such an HR or IT organization) and its internal customers inside a large enterprise. Translating Herzberg’s concept of hygiene into organizational expectations, the provider must do certain things to be seen as merely competent; such as delivering basic services on a timely basis and at reasonable cost. Satisfying these expectations does not create satisfaction with the provider, but failing will undoubtedly create dissatisfaction.

But no organization can be content to merely avoid the dissatisfaction of its customers and expect to survive. To be seen as a true contributor of value to the enterprise, the provider must identify and deliver performance that will truly satisfy the desires of its customers. While this concept of Competency and Contribution can be applied broadly to almost any organization and its stakeholders, it has worked especially well when talking to leaders of IT organizations. Unfortunately, many IT organizations are not seen as sufficiently competent by their stakeholders – but more about IT organizations in future posts.

Because the purpose of any organization is to create value (for a set of stakeholders), and an organization’s strategy describes how it will create value in the future, this value proposition should ensure that stakeholders’ two-factor expectations are met. This has important implications for the design of the organization’s strategy map, a topic we’ll also cover in much greater depth in future posts.

To put these ideas into practice, examine your own organization’s value proposition – its answer to the question, “How do we create value?” Classify each of the answers as either “competency” – one whose absence will cause stakeholder dissatisfaction), or “contribution” – one whose presence will delight your stakeholder. Your answers may surprise you. Is your organization’s aspiration to be merely competent?

The essence of the riff is this: Blockbuster built a very successful business model and then had its lunch eaten by Netflix. The key lessons we can learn from this case are:

• Don’t underestimate the power of technology to change your competitive environment.
• Constantly be looking for ways to challenge and reinvent your value proposition, or your competitors will do it for you.
• Recognize and overcome the forces that will resist change in your own organization.

Let’s look at the history. Blockbuster opened its first store in Dallas in 1985. It grew rapidly through franchising, company-owned stores, and acquisition and consolidation of the thousands of independent “mom and pop” video rental retailers around the country. The value proposition was easy to see: convenient, economical, and reliable rental access to video and game entertainment, in a clean and family-safe (with no X-rated movies) environment. Viacom acquired Blockbuster in 1994 for $8.4 billion.

But Blockbuster’s fortunes have been on a long decline. Viacom floated shares in Blockbuster with plans for a full divestiture. The separation was completed in 2004, with Viacom taking a $1.3 billion charge for its trouble. Blockbuster stock, which traded above $29 a share in 2002, has recently been trading below $1.00 per share. Blockbuster’s market capitalization is less than $150 million, and trading was halted briefly in March 2009 on rumors of bankruptcy.

Billions of dollars in shareholder value lost. What happened? Netflix happened (although other, less significant forces contributed). Netflix was established in 1997 and has its headquarters in Los Gatos, California. Although it started with a conventional pay-per-rental model, it introduced its monthly subscription concept in 1999, and dropped pay-per rental soon after. Capitalizing on the shift from tape to disk media for video, Netflix’s business model exists entirely without a bricks and mortar retail presence.

The basic value proposition of Netflix has been to capture its customers’ DVD choices on its website (heavily driven by customized recommendations), and ship the chosen DVD to and from customers via U.S. Mail. Compared with bricks and mortar video rental stores, Netflix offers the convenience of website ordering and door to door service at the sacrifice of same-day service. In most cases, DVDs arrive in the mail the day after an order is initiated (either by request on the website or returning a previously rented DVD). Netflix’s success has certainly been due in part to reliable execution of its order capture and delivery processes. Netflix went public in 2002 selling over 5 million shares at a (split-adjusted) $7.50. After having incurred losses for a few years, it posted its first profit of $6.5 million on $272 million in revenue in 2003. Netflix recently traded around $40 per share, and has a market capitalization over $2.2 billion.

Don’t underestimate the power of technology to change your competitive environment

Netflix’s business strategy was entirely built on the basis of then-available technology. Environmental changes, such as higher penetration of internet access and broad availability of DVD players changed the landscape, and created opportunity. Of course, the technology was available to Blockbuster, which was certainly aware of environmental change. But Blockbuster was slow to respond.

Compared with Blockbuster’s retail video rental model, Netflix offered the value proposition of convenience, choice, essentially unlimited inventory, and of course low cost; all because the consumer interacts with Netflix using her computer, rather than having to physically visit a Blockbuster. Think about the layout of a typical Blockbuster store; nearly all the space is occupied by air. This air creates aisles that allows consumers to walk and see (often with some difficulty) the cover art and titles of perspective DVD rentals. The actual space necessary to store the DVDs is a small fraction of the space needed for an effective browsing environment. So Blockbuster incurs a huge overhead in real estate, as well as the relatively modest salaries of the clerks and store manager who probably aren’t offering you a lot of advice about what movie to see.

Although Blockbuster finally entered the online market in 2004, it hasn’t enjoyed the same success as Netflix. It was sued by Netflix in 2006 for patent infringement on the design of its online rental program (the case was settled with undisclosed terms). Recent measures of online traffic show that Netflix.com outdraws Blockbuster.com by a factor of about 5 to 1.

Constantly be looking for ways to challenge and reinvent your value proposition, or your competitors will do it for you

Despite competition from self-service rental kiosks from such firms as Redbox, Netflix seems unlikely to be overtaken soon by a competitor. Despite its current success, Netflix is in the process of reinventing itself. Netflix has added a “Watch Instantly” feature to its web site. At no additional cost, eligible subscribers are able to stream near-DVD quality movies and recorded television shows instantly over the internet. While the number of titles available now is limited, the inventory of Watch Instantly titles is growing rapidly. Netflix is now forming partnerships with electronics manufacturers to instantly stream movies directly to their devices. In May 2008 they released a set-top-box to stream Netflix’s Watch Instantly movies. While Blockbuster may have been competing with Netflix, Netflix today seems to be gearing up to compete with cable and satellite video distributors, as well as such studio-sponsored streaming sites as Hulu.

Recognize and overcome the forces that will resist change in your own organization

Without insider knowledge, we can only imagine what kinds of leadership meetings took place at Blockbuster when rentals began to decline in favor of Netflix and other competitors. What seems clear is that Blockbuster was unable to muster the courage and the tenacity to reinvent itself in the face of technology and environmental change. Netflix seems to be embracing the inevitability of change in its future.

Here was an excerpt of the proposal:

Light-Duty Trucks: The old vehicle must get 18 mpg or less. New light trucks or SUVs with mileage of at least 18 mpg are eligible for vouchers. If the mileage of the new truck or SUV is at least 2 mpg higher than the old truck, the voucher will be worth $3,500. If the mileage of the new truck or SUV is at least 5 mpg higher than the old truck, the voucher will be worth $4,500.

Wow. It sounds like a windfall for a very slight improvement in gas mileage. But it may be because we are looking at fuel efficiency backwards. Americans evaluate fuel efficiency different than how those do in most other parts of the world.

MPG (miles per gallon) implies that given a fixed amount of gasoline, and we drive as far as we can on that fixed amount. In reality, we usually drive a fixed amount of miles (as a function of commuting patterns to work or school, etc.), and change our driving habits only slightly in response to more plentiful (e.g. cheaper) gasoline.

In Europe and elsewhere, consumers consider the ratio in reverse; quantity of fuel consumed per each fixed distance driven. So let’s use a nice round number of 10,000 miles (roughly the average passenger car distance driven in a year), and consider consumption in GP10kM (gallons per 10,000 miles).

One can save about 100 gallons by upgrading from 18 MPG to 22 MPG, but only about 28 gallons by going from 36 MPG to 40 MPG. This is not a revelation, just a different way of looking at the same information. Watch the four minute video:

The U.S. auto industry has resisted using fuel per unit of distance ratio in favor of distance per unit of fuel ratio to describe fuel efficiency. This may have led to the proliferation of inefficient cars in the U.S. (and perhaps indirectly the stress on the U.S. industry). Researchers at Duke University argue that the EPA should provide consumers with additional GPM information along side MPG when making auto purchase decisions.

What’s the takeaway? Measurement is an important part of motivating people to change. How we present measurements affects perception and behavior. Tenacious change agents in organizations will challenge traditional performance measures and ask what behavior is each measure motivating. Traditional measures promote the status quo, and new measures are needed to drive change.