The most widely used strategy performance management tool across both public, private and non-profit organizations is rooted in BSC, or Balanced Scorecard. The basic system of BSC was created by Art Schneiderman in 1987. However, it only gained popularity in 1992, when Robert Kaplan of Harvard Business School and Dr. David Norton systemized the balanced scorecard design by linking corporate strategy and strategy execution.Creators of BSC saw that sales and profits alone could not fairly indicate a company’s performance, so they designed a tool to comprehensively evaluate and manage corporate performance in four areas, namely financial, internal process, customers, learning and growth.The companies that adopted BSC focused on the organization’s objective and strategy. They identified the Critical Success Factors to achieve a strategic objective and quantified them into KPIs in order to efficiently execute strategies and manage performance.
Aside from providing a comprehensive evaluation of corporate performance, BSC can also be useful for executing corporate strategies, since it helps to align everyone’s tasks to the objective and helps employees to understand the overall strategy. In Korea, E-Land Group was the first successful case of adopting and utilizing BSC. E-Land first introduced BSC in 1998 when productivity did not improve despite its aggressive, large-scale reorganization caused by the economic shock of the Asian financial crisis of 1997. E-Land created a new strategic map and devised customer-driven strategies, which were turned into KPIs and managed monthly. The feedback gathered from BSC was shared across employees, and based off of this, the company created a platform where employees could learn and grow. BSC was used to gather about 26,000 feedback items, which were registered at E-Land Knowledge Management System, helping the group reduce inventory and increase net profit. Despite this effort, many businesses still struggle to bridge the gap between strategy creation and strategy execution. BSC was introduced fifteen years ago, but in 2008, Kaplan asserted in Harvard Business Review that many businesses still fail to connect strategy formulation and execution. This naturally creates a gap between corporate vision and their actual performance. With the development of AI and robotics technology, digitization has become the hottest keyword for businesses, and companies and individuals alike are being asked to become more “agile” in this era of transition. Now, the key is in how companies execute their digitization strategies so that they lead to substantial results.
SAP, the global leader in business applications and technology, is a notable example of successful strategy execution. SAP turned its focus from software to cloud computing by implementing a strong leadership development program. Through this program, SAP was able to increase its employee engagement rate from 77% to 85%, and as a result, the organization successfully transitioned from a software company to a global cloud computing business enterprise. BBVA Bancomer, the largest bank in Mexico, is another example of an organization that successfully executed a new strategy to drive increased profitability. They were able to do this by changing the behaviors of their branch managers. Bancomer created a virtual experience based on the real business model so that their employees could practice running the business. This allowed the branch managers to gain an advantage over their digitized competitors. As a result, Bancomer was able to improve profitability by 11% in corporate finance and 15% in small and medium-sized enterprise (SME) finance within nine months. The Biz Times met with Henrik Ekelund, founder and CEO of BTS, to ask about the method and effects of strategy execution. Ekelund is visiting Korea to attend BTS’ regional conference.
BIZ TIMES: Today, disruptive innovation and digital transformation are changing the business environment. From BTS’ perspective, how does the current global business environment look?
HENRIK EKELUND: Four very powerful changes are occurring simultaneously.
First, the consumers are changing. We, as consumers, are becoming more demanding and willing to change brands quickly. So, the war for the preoccupancy of consumers is becoming tougher.
Second comes the talent. Millennials are entering organizations quickly. The younger generation have different expectations of companies they want to work for. They want more freedom and long to find more meaning of the work they do. There are also fewer of them because of the declining population. So we are facing the war for talent as well as a need of adapting to the new expectations of this generation.
And third, we are witnessing huge changes in technology, such as social media, mobile, AI, machine learning, etc. This very much impacts companies, how they organize, how they are led, and the skills that are needed.
And fourth, competition. Competition is becoming more and more fierce and intense. While the world economy is positive and companies are doing well, there are rapid market changes that require new demands for businesses. And we believe that companies today should use the profit to make investments for the coming challenges and changes.
Three Key Elements of Strategy Execution:
- Alignment: Understanding and agreeing with the importance of strategy and implementation
- Mindset: Focusing on willingness, faith, passion, and tenacity for execution
- Capability: Having decision making, leadership, and sales capabilities
Analyzing the market is not enough. Step out of your office and talk to your clients.
BT: Many people have been asserting the importance of strategic execution for a long time. How is BTS’ perspective on strategy execution differentiated from other firms’?
HE: BTS has identified three core elements for strategy execution based on more than 25 years of experience and knowledge. Execution is a key element to success. According to a study, the most common reason for firing an executive is his/her lack of executive ability. To execute a strategy successfully, three things should be achieved.
- Number one is “alignment”. Alignment means that everyone in the company understands and embraces the significance of strategy. They need to share the idea of what the company strategy is, why it is important, and how it should be executed. If everyone shares the same view of alignment, the whole company works organically as one team.
- Second is the “mindset”. Simply understanding what the strategy is or how to formulate it is not enough. The right mindset for success requires willingness, trust, passion, and commitment to the strategy implementation from everyone involved. Success flourishes when employees execute the organization’s strategy and connect its success to their personal accomplishments.
- Finally, “capability” is important. The business acumen to effectively execute the strategy, the decision-making abilities, the skills to manage the organization properly, and the sales capabilities are what make up the “Capability” necessary for great execution.
If you combine these three aspects of strategy execution, you will achieve amazing results.
BT: We are entering an era where agile organizations are surpassing big organizations. In this respect, what is your opinion about Korean companies?
HE: Leading global companies invest in innovation, technology, and people, because they need to move faster and be more adaptable to changing consumers. Korean companies cannot be organized the same way as before and need to move from the typical hierarchical structure to more network-oriented organizations, where leaders are more empowered to move quickly. This is also important for meeting the expectations of newer generations.
Over the last 10 years, when you asked CEOs, “what is the most important element to invest in,” the typical answer was technology. This has changed over the past couple of years, and when you ask CEOs today the same question, technology is now number two. Their top priority is investing in leaders and the people. This is very logical because technology is now available to everyone. Every company can find the technology they need. What becomes the ultimate competitive advantage is the leaders and the people they have.
One of our missions is to help our clients become more agile, so many of our projects focus on helping our clients achieve the necessary agility. Leaders need to be more agile so they can move faster and be more efficient. Korean companies are typically strong in their access to very good technology and have dedicated people working on it in the organization. The challenge, however, is that the average Korean company is not prepared well enough for the new era. They do not move fast enough to meet the changes in the market.
BT: How can businesses quickly adapt to a rapidly changing market?
HE: Businesses need to test themselves in order to adapt more quickly, changing their business at the relevant speed to keep up with the market. Innovation is possible only when businesses test, learn, make mistakes and identify the correct solutions to their problems.
Not long ago, I met with Uri Levine, the co-founder and former CEO of Waze, which was recently sold to Google. Uri said, “Successful innovation is a series of mistakes that you make as quickly as possible. You need to learn from each mistake, and then you get a solution.” I absolutely advocate for this approach, and it is what we teach in our innovation practice at BTS.
Companies need to allow small mistakes. A big mistake can cause severe damages, but small mistakes allow companies to learn and find correct solutions faster. Through our work with LG, Samsung, and Hyundai Motors, I have found that their successful executives have never failed. There is a fear of failure and a pressure from business owners to create “sizable businesses.” But sizable businesses cannot form overnight. Companies must build and grow their businesses over time. Successful failures are the consequence of small bets. We always recommend that companies test a lot of things on a very small scale. But there are very few companies who are actually willing to do that in Korea. It’s important that CEOs are very open and provide the right rewards to celebrate a success after failure. Rewarding is very important.
BT: Do you have any general advice for the global market as the CEO of a global consulting firm?
HE: As a global management consulting firm, BTS helps organizations by assisting the leaders to put strategy into action within the local context. Just as Indian customers behave differently than those in Brazil, business leaders must understand their target audience and recognize how they need to adjust to be successful.
Where BTS can help Korean companies is in how they work with their leaders and employees around the world, whether in Vietnam, Sweden, or India. BTS can give leaders cultural or international acumen, teaching them how to lead a diverse group of people from different backgrounds. Those are the types of soft skills we provide.
If Korean organizations diligently pursue differentiations by asking questions, such as “who are my customers?” and “how can we change to better serve them?” there is no doubt that they will be able to improve their businesses.
BT: The strategy execution consulting program at BTS has yielded remarkable performance improvement, especially in the leadership area. What type of leadership would you say is essential for a business to thrive?
HE: BTS provides programs for senior and middle executives on a global scale. The leading global companies are willing to invest time and money on leadership development to nurture their leaders, who become better and more effective in their jobs.
At the same time, I want to say that there is no one success formula for leadership program. It depends on many factors, such as the type of company, industry, corporate culture, etc. So, to make a leadership program successful, you must adapt the program to the culture and focus on the specific leadership approach that is right for the respective company. Also, I would like to emphasize one point. Leadership must be respectful of cultural differences. Successful leadership in the US and successful leadership in Korea are not exactly the same. It is risky to take US or European concepts and just enforce them on Asian countries. You can learn a lot from different countries, but we must recognize that each culture is unique and we need to have leadership that works in the specific culture of the respective country.
BT: How is BTS executing their own strategies?
HE: Part of BTS’ values are freedom and responsibility. This means that I am free to do my work in the way I see most appropriate while taking responsibility for the outcome. To illustrate, BTS always strives to create exceptional experiences for our clients. How we do this differs by countries. BTS Korea, BTS Japan, and BTS China are all quite successful. When I talk with the leaders of BTS Japan and BTS China, we all follow the same global principle and execute it the way that works best in the respective markets. When someone asks, “what is the best way to handle tasks?” my answer is, “you know the principle. Just try to interpret the tasks based on the principle.” I simply provide the big principle by which our company stands for. In other words, we have key principles, but do not have specific guidelines. My understanding is that as global leaders, they should know how to interpret those key principles and apply them to their reality. Therefore, empowerment is important. If the big principle is very much aligned throughout the company, then, based on those big principles, employees can execute them in their own way
BT: You said that businesses must meet the expectations of millennial talents. One of the priorities of this generation seems to be work-life-balance. What are your thoughts on this?
HE: For the past five years, there has been a move in Korea to learn from Nordic countries and their successes. Population sizes are small in Nordic countries, but their businesses celebrate global success, as demonstrated by Denmark’s Lego, Sweden’s IKEA and H&M. They also have a different work-life-balance and do not work 24 hours a day. They work 7 to 8 hours a day, their social security is strong, and they enjoy a high level of productivity. The Nordic countries work hard and, at the same time, enjoy their lives.
For example, the Swedish society has been quite democratic for over 100 years and not very hierarchical. It allows its people to have a lot of freedom, rather than forcing order through command and control. And this, of course, impacts how Swedish companies are managed. In general, Swedish companies have combined decentralized management with leadership empowerment for a long time. By allowing freedom and flexibility, they were able to stay agile. Such corporate culture is very much alive in most Swedish companies and in BTS as well. When high-performing employees are provided with the freedom and flexibility to make a difference, they perform better than when controlled by the organization.
In the new global business environment, consumers are becoming more discerning, and new talent is pouring in. Companies must adapt to social media and AI to survive.
Korean businesses must prioritize investing in talent to meet the challenges of a changing market. Korea has strong technological power and talent, but lacks agility.
To survive in the rapidly changing world, you must not be afraid of small failures. Challenge yourself! Know your customers. Introduce more advanced corporate cultures.