In applying the tools for growth strategy reviewed earlier in this series, it’s clear that significant work is required to develop good growth strategy. However, once completed, strategy must be implemented — and this may be the most difficult part of the journey. The most successful growth companies are those that can transform strategy from a singular event, into an on-going process, overlapping, supplementing, and ultimately strengthening their normal quarterly and annual objectives-setting and financial processes. In essence the most successful companies become strategy-focused organizations.
While there are many approaches that have been used for strategy implementation, I have found the Balanced Score Card to be very effective. This final article describes the Balanced Score Card (BSC) approach, and especially touches on some important points specific to growth strategy implementation.
Balanced Score Card
Balanced Score Card was introduced by Robert S. Kaplan and David P. Norton in the February 1992 Harvard Business Review. Kaplan and Norton over the years further researched and defined the BSC concepts and toolsets for practical adaptation by many large organizations.
In simple terms, Balanced Score Cards are, metrics for setting goals and objectives that are “pro-active” in nature. In addition to traditional financial perspectives, BSC includes perspectives of the Customer, Internal Business Processes, and Innovation and Learning. The Financial Perspective includes the goals and historic measures from the P&L statement and balance sheet, such as Sales Growth, Margins, ROS, EBITDA, ROI, Inventory Turns, Cash Flow, etc. The concept of using the additional perspectives is to offer balance, provide metrics, and link the performance measures that will lead to the desired financial results. By grouping and linking goals and measures in an organized manner, the hope is to limit the number of measures used to a critical few.
Customer Perspective
Metalcasters are well aware of the critical and demanding expectations of their OEM and supply chain customers. Delivery time, quality, technical service and capabilities, and cost are common ways that managers can articulate, measure, and set meaningful goals to drive performance. Progressive organizations proactively include their key customers in the process of setting the parameters of performance from their perspective. Tools such as Voice of the Customer (VOC) can be useful in this approach, to elicit open dialogue, and to rank and prioritize what’s really important, for example, from a total cost in use perspective.
Often the most promising areas of growth can be identified at current customers that are within the core of an existing business, or from product lines that are within the core of an existing business. In this case, goals and measures can be developed from which the organization’s objectives can be developed.
For example, for an existing core customer, the goal might be to increase the “share of total castings like the ones we make that they buy.” Often, This can often be defined further as “share of total castings, including castings we’d need to start making, or, source from others.”
Likewise, value beyond castings at a core customer often is fertile territory for growth. The key is to understand the customer’s requirements fully, and how you can meet those needs profitably, and then setting goals and measures to do so.
For an existing core product line where new product innovation is desired, reaching a “percent of total sales from new products” can be used to align and drive the organization. Adding product or service lines beyond those currently in the core can become an important aspect of growth programs. Specifically articulating the expected goals and measures for the new products/service lines is a critical part of growth programs.
Likewise, incentive payments, commissions, promotions, etc., must be aligned to drive an organization toward new product lines and services. Otherwise, an organization stays comfortable with its existing products.
Growing into an adjacency requires re-examination of a customer’s perspective for the targeted adjacency. For example, growing sales into a new geographic region, especially if it is international, requires careful review and understanding of the customer’s expectations that are specific to that region. An adjacency that involves a different part of the casting value chain — for example, adding machining or assembly capabilities — requires evaluation of the customer’s expectations for these value-added capabilities, as well as an understanding of the competitive environment.
Understanding what is not so important to a customer is useful in order to free resources historically dedicated to the core business, so that these resources can be made available for growth. The total resource needs for a core business often are overestimated, especially in slow-growth markets, and key people can be redirected to growth initiatives without impacting the core business.
Internal Business Perspective
Once understood, the requirements as defined by the customer perspective must be translated into goals and objectives internally, so that customers’ expectations can be met. Managers must focus on the critical internal processes, priorities, and decision-making that have the most impact from a customer perspective
Foundries have no shortage of critical internal measurements. For BSC, however, the trick is to concentrate on a critical few overall measurements, and then for managers and workers to define actionable measurements throughout the operation that will contribute to the overall measurement. For example, an overall measurement of reducing internal scrap” could have actionable goals and measures throughout the metalcasting production process.
For valuable customers various tools exist, such as Quality Functional Deployment (QFD), to carefully translate product requirements into product technical specifications and manufacturing process parameters.
Goals and measures for internal processes must extend well beyond the shop floor, to sales, technical service, and marketing, where efficiency and effectiveness measures are becoming more readily available, and can be readily linked to sales outcomes via Customer Relationship Management processes and software. Successfully implementing a growth strategy requires an astute understanding and careful attention to the existing internal business perspective. Processes designed and optimized for the existing core business may need to be altered to accommodate new customer offerings.
Innovation and Learning Perspective
As the adage goes, the one constant is change! Success targets must be constantly re-evaluated and challenged in order to stay ahead of the competition. Intense global competition, and generally low- or no-growth market sectors make innovation and learning key organizational attributes for metalcasting companies.
North American foundries that have survived and prospered over the past decade have become expert at cost reduction, cash management, and lean. As less capable foundries have closed, the survivors have been doing pretty well, especially with the resurgence of a domestic oil and-gas sector. However, metalcasters also must look at innovation and learning needs from a growth perspective.
Expanding a product portfolio, exploring new castings markets, understanding new metallurgical developments, adding value via services, moving into new geographies – all these require new skill sets, goals and measures. Forcing the organization to look “outside the box” and beyond the comfort zone, can be accomplished via good objective setting.
For example, if your organization is targeting a new market, have some of your people join the trade associations of your potential target market, attend trade shows, and proactively seek out contacts in that market. If you are considering international expansion, assign a senior manager to spend time in targeted geographies, not only visiting foundries, but, also OEMs, machine shops, universities focusing on metalcasting, and government agencies and trade associations that are important to the metalcasting industry in that region. Develop some summer internships, or hire one of the many international students graduating from U.S. universities each year, some of whom attend Foundry Educational Foundation schools.
The Strategy-Focused Organization
BSC is a tool to link historic operational management of the P&L, Balance Sheet, and Cash Flow, to strategy implementation. In 2001, Kaplan and Norton introduced a concept called the “Five Principles of a Strategy-Focused Organization,” after studying how a number of companies had adopted BSC to achieve breakthrough performance. Having now experienced BSC in a variety of companies and situations, I firmly subscribe to these principles, summarized as follows:
1. Translate the Strategy to Operational Terms.This is really translating the strategic intent into manageable and doable objectives, with metrics that can be widely understood throughout the organization.
2. Align the Organization to the Strategy.This is all about ensuring that each sector, business unit, and functional department within the organization fully understands and supports the strategy of the organization. Silos between groups within the organization can mean death for the strategy, and especially growth strategy.
In particular, as senior managers roll out the strategy, it’s crucial to have a high level of interaction across the organization, as well as some iteration of “draft” scorecards to develop a common set of linked scorecards.
3. Make Strategy Everyone’s Everyday Job.Strategy-focused organizations’ drive toward understanding the strategy starts via top-down communication. This can, and should, include even some fairly sophisticated business concepts, meaning education is part of the communications process. It is always reassuring to find that employees throughout the organization and on the shop floor can understand subjects like customer segmentation, contribution margins, etc.
Unfortunately, planning and implementing communication often is poorly done. Frequently, top-down communication becomes top-down directives and bypasses the honest engagement of all the employees. I have found that the best in-class organizations for strategy implementation communicate a very complete strategy in an understandable and engaging way. Individual objective setting is formatted in a way that links individual objectives to the strategic objectives of the organization. Also, the best companies – after they understand BSC – tie pay for-performance to BSC metrics.
4. Make Strategy a Continual Process.If it’s done correctly, BSC links the historic budgeting process, (which most organizations do) to strategy. By having a three- or four-year horizon on desired strategic outcomes, BSC forces the organization to think and act differently.
At first, it will seem like (and often is) a great deal more work to manage the Balanced Scorecards, in addition to the traditional financial metrics. It’s easy to become mired in the financial details, especially if the budget is not being met.
But, if given equal attention to financial management, the managing of the Balanced Scorecards eventually pays huge dividends, including finding more time for managers to act strategically, as the rest of the organization is more aligned and focused on what’s important to produce the desired results.
5. Mobilize Leadership for Change. Implementing strategy and a BSC is a change project. Active engagement and ownership by the entire executive team is critical for success., In my experience, 100% engagement is needed, preferably, if the Team is fully capable, right from the beginning of the strategy process. This does not mean that the members of the executive team will see eye-to-eye on everything. In fact, the best team is one with diverse perspectives but who collectively bring much different viewpoints and ideas to the process of developing the strategy.
However, once formulated and agreed to, the executive team must be heard and seen as “one voice” on the strategy throughout the organization. On-going discussions and management of the strategic issues and direction can, and should be, part of the executive team’s charter. The best management teams become astute at fine-tuning, continually evolving, and implementing strategy on an on-going basis. These teams can shift an organization to respond effectively to new challenges or to take advantage of new opportunities.
Learners and Knowers
It’s commonly observed that most companies have no strategic planning. Of those that do, only a handful excel at strategy implementation. While strategy and its implementation require extraordinary commitment by senior managers, those companies are capable of long-term, sustainable and profitable growth. Companies that become “strategy focused” can become extraordinarily proficient at competing, irrespective of the external environment. Expanding the core of the business, or even morphing the core business over time, becomes much more plausible. Strategy-focused companies also attract and retain the best people, and find ways to create the most value to the customer.
On the matter of organizational management while implementing strategy, consider one pertinent observation by the eminent psychologist and social theorist Eric Hoffer: “In times of change the learners will inherit the earth, while the knowers will find themselves beautifully equipped to deal with a world that no longer exists.”
The foundry industry tends to be a cash-flow roller coaster. Old-timers in the North American industry talk about a 10-year cycle. The time to look outside the box, question the existing strategy and explore, is during the good times, when the cash flow allows you the flexibility to do so.
But, good cash flow often invites complacency, or an impulse to do more of the same, believing more success will follow. I challenge more metalcasters to look hard at strategy during the good times.
If you do pursue strategy, my advice is to get some external help, to guide you and your team through the process, to challenge, and to offer unbiased observations. This can be from your board of directors, or a separate board of trusted advisors, perhaps from a diverse background. It should also include some professional help in the process of strategy and its implementation.
Good Luck and Good Growth!
Mike Swartzlander is the Managing Director of Cast Strategies LLC, which provides consulting services on growth strategies to manufacturers in the metalcasting, specialty chemicals, and composites parts markets. Visit www.cast-strategies.com