John Deitz
President,
Optimal Enterprise
 
ARTICLE
A Question of Balance
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In the 70's I was a big fan of the Moody Blues (the source of this title).  It was an introspective time for pop culture - full of questions about the secrets of the universe and our individual roles in life.  The philosophies of that age left a mark on me, especially those that explored the nature of "balance".

Balance is one of the most critical elements of the world we live in, and perhaps the least understood.  For centuries wise men have told us that for every action there is an equal and opposite reaction.  Certainly this is proven true in virtually every aspect of life.  For instance, most of the medical and psychiatric professions are dedicated to restoring balance in the body so that it can heal itself.  Likewise in every business marketplace, early competitive advantage goes to those who can predict that an imbalance of some sort will create a new market opportunity.

An important issue of balance has come to light from our leadership work with clients.  And that is:  how do you increase business value (customer satisfaction, production, efficiency of operations, profitability) in the most direct and permanent way?

The Bigger Question

There's something about balance that we tend to forget:  when you lose it, even the most positive forces start working against each other.  Nowhere is this more apparent than in businesses that have gone through rampant growth, or experienced dramatic stresses in their marketplace.

During heavy growth cycles, each functional area (Sales, Marketing, Accounting, R&D, IT, Customer Support, Client Services, etc.) is challenged to do three things: 1) provide strong service levels within the company by operating efficiently; 2) maintain costs within acceptable margins; and 3) overcome the stresses of growth to produce higher tangible value.  It would seem to follow that if every function in the company could operate at peak performance, the business itself would run optimally.

But this is not the case.  In the quest for self-improvement, functional areas become self-involved.  Certainly the company depends on departments to make continuous improvements. But like all changes, these improvements come at a price.  A department that is stronger than its peers can actually overpower and compromise the performance of other departments.  So the bigger question is:  Can the AGGREGATE operations of the company fulfill the corporate objectives for the next business period?

Back to the question of balance.  How do you ensure that all functional areas of the business are aligned - and, yes, balanced - to achieve corporate goals?  The answer is you cannot - unless the objectives for functional areas are framed and measured against the corporate objectives.

Leadership Style Affects Balance

Every company has its own personality.  Particularly strong companies tend to take on the personality of their strong leaders.  Examples like Microsoft (Bill Gates), ORACLE (Larry Ellison), PeopleSoft (Craig Conway) and IBM (Lou Gershner) bear this out.  Strong leadership is a cornerstone of business success.  But it is only the beginning of the success cycle, not the cycle itself.  Consider these two leadership styles:

Over the Top.  Some of the most successful companies struggle with top-heavy leadership. The dynamic and insightful individuals that founded the company make nearly all the driving decisions.  Perhaps they get impatient with slower thinkers, or just enjoy the power and control. Important decisions are made behind closed doors.  In many cases, functional areas are micro-managed at fairly low levels - usually against tight budgets or spending limits.  Acquisitions are quickly merged into the corporate whole, often at the expense of jobs and potential business value.

Top-heavy management styles are perilous in a number of ways.  First, the strategies tend to be high-level and simple. They may also be poorly executed.  Top executives only have so much time to spend on actual management;  other pressures like business development and public interfacing quickly take precedence.  Second and third tier managers are left out of the strategy-building exercise, so their strategy-related skills and value-building potential go largely untapped.  This is a breeding ground for distrust up and down the management chain.  In severe cases, a significant percentage of the company's workforce may be left feeling uninvolved with corporate direction, just acting as part of the corporate machine.

Long Leashes.  At the other end of the spectrum are companies led by highly energetic entrepreneurs with no predisposition for micro-management.  Growth and innovation is encouraged by "spawning" business units, some of which actually compete against each other.  Successful business units are spun-off into new companies or subsidiaries, perhaps unrelated to the mission of the parent company.

The long-leash philosophy has a number of benefits.  It breeds entrepreneurism and bright, quick-thinking individuals.  At least conceptually, the overall risk seems lower because there are so many "irons in the fire".  And in smaller business units, everyone feels closer to the action with more personal contributions.  But the style has its downside.  Significant operational overlap (function duplication) occurs between business units.  Satellite organizations may become so diverse that they lose alignment and synergy with the home office.  Losses from failed projects are hard to predict, and can negatively impact corporate earnings per share.  And not least of all, juggling several head-strong "fiefdoms" can be a real challenge.

Putting Balance to Work

Some of the world's most forward-thinking companies are adopting a time-tested approach to leadership called Balanced ScoreCard, or BSC.  BSC techniques originated from the work of Kaplan and Norton on the mid-90s, and have been continually refined and proven in companies as diverse as Mobile, AT&T, Fannie Mae, Shell Oil, United Parcel Service, General Motors and J.P. Morgan.

A BSC approach to leadership achieves balance in a couple dimensions.  First, BSC is a framework for exploring and communicating strategy in "perspectives" that comprise a balanced view of enterprise objectives.  These perspectives are:

Financial Perspective.  This perspective encompasses strategies for growth and profitability, along with managing the risks inherent in those strategies.  In many types of corporations, strategies in the Financial Perspective serve as drivers for the other perspectives.

Customer/Partner Perspective.   This perspective encompasses strategies of value creation as perceived by customers and partners.  It is externally-focused, ensuring that the impact on the corporation's image, brands and operational relationships are carefully considered and leveraged to achieve the goals of the enterprise.

Internal Perspective.   This perspective embraces strategic priorities for cross-functional business processes and business automation, which ultimately create customer and shareholder satisfaction, and establish optimal internal service levels that foster and support that satisfaction.

Learning & Growth Perspective.  This perspective establishes priorities that focus on maximizing "people" assets.  These strategies foster growth and ingenuity through organizational change, innovation, knowledge-sharing, communication and business intelligence.

Balancing these perspectives reduces risk.  By considering how various perspectives contribute to strategies, executive decision-makers gain deeper insight into the building blocks of execution, and the cause-and-effect of actions across departments.  They also gain a clear understanding of which (and how) perspectives contribute to a strategy, and if the strategy is too broad or vague to measure effectively.  In some cases, organizational changes are made to enhance the cost benefits (and results) of the strategy-focused culture.

The second dimension of balance is even more powerful.  The responsibility for achieving corporate goals is distributed (balanced) across every level of the company.  Employees in every capacity become active participants in both understanding strategy, and devising how their direct actions will contribute to successful corporate outcomes.  They get a clear picture of the results the enterprise needs to achieve, and why and how their actions will be measured.  Perhaps more important, they are empowered to recognize when their current tactics are not achieving the desired outcome, and encouraged to propose appropriate changes in tactics.  In effect, strategy is no longer a top-down directive, but instead becomes part of everyone's job, regardless of rank or role.

Strategy-focused organizations see the logic and purpose behind working in concert toward corporate goals.  Each individual understands how his role contributes, and more readily recognizes the direct and indirect value of his actions.  Departments are disincented to operate in functional "silos", and readily discover the power of attacking broad objectives with cross-functional teams.

In short, this balanced approach to strategy execution has a dramatic upside.  When managed effectively, all corporate resources - both tangible and intangible - are clearly focused and aligned with business-relevant objectives.

The world of business has come a long way since the 70's.  The pace of change is several times faster, and the opportunities to succeed and fail are significantly greater.  But some truths remain universal, withstanding the test of time.  The theory of balance is one of them.


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