The Strategy-Focused Organization: Theory and Method (II)
Synergy
 Strategy as a Step in a Continuum
 Aligning the Strategy to the Organization

Synergy

Synergy = “The combination of factors which each multiply the
effects of the other(s) rather than merely adding to them.” [i]

When the whole resulting from employing organizational
resources and capabilities exceeds the sum of the parts we may
speak of a special global effect that is its synergy.
[i] Source: www.llrc.org/jargonbuster.htm
Illustration: Market Value Added: General Motors & General
Electric compared
General Motors
Market value
- Capital Employed
= Market Value Added
Revenues
Employees
Profits
General Electric
$62 billion
$176 billion
($83 billion)
($54 billion)
= - $21 billion
= +122 billion
$169 billion
$70 billion
709 000
222 000
$5.0 billion
$7.3 billion
Source: Lowe, Julian. Strategy and Management of Change, Understanding Strategic
Performance


The synergy allows the organization to transform the sum of its
numerous sectors, business units, departments, different functional
areas such as finance, manufacturing or sales into a whole exceeding
their mere sum, resulting into a new type of organization that display
a new feature of being a strategy-focused organization.
Synergy has the power of transforming an institution “traditionally
designed around functional specialties”, each function having its own
“body of knowledge, language and culture”, therefore, being
fragmented by major barriers, into a strategy-focused organization. It
is surprising to see how a functional-oriented organization leaves its
place to a highly focused organization that break through the former
barriers between the functional specialties of the same company.


“Executives replace formal reporting structures with strategic themes
and priorities that enable a consistent message and consistent set of
priorities to be used across diverse and dispersed organizational
units. Business units and shared service units become linked to the
strategy through the common themes and objectives that permeate
their scorecards. Often, the ad hoc organizations emerge to focus on
scorecard strategic themes.”[i]
We have to underline the new concepts arising from such an
approach: the organizational process, the strategy-focused
organization, the ad hoc organizations (emerged to focus on strategic
themes). These concepts add themselves to the traditional approach
of the organizations and together with the above mentioned
concepts required by the strategic management approach of a
company – the strategy map, the Balanced Scorecards, the cause-andeffect linkages, the synergy as an overarching goal of the organization
–lead to rethinking of the science of the organization in a
revolutionary way.
[i] Kaplan, Robert S., Norton, D. (2001). Op. cit ., p. 12


The science of organization keeps its pace with the new type of
economy that emerged with the beginning of the new
millennium. This new approach which is tantamount to a new
paradigm sanctions the triumph of weberian perspective on the
economy and organizations. The ethos has a crucial role in
promoting a new historical type of economy. The new operating
management system focused on the strategy and on the
intangible assets is the equivalent within the organizational
strategic approach of the weberian concept of ethos.
Coming back to the operational aspects of the strategic
approach we should, further, stress out that it illustrates a
topological research perspective in the study of a company as
long as such an approach requires to look for other spaces of
attributes or variable describing the ad hoc organizations
emerged to focus on scorecard strategic themes. Kaplan and
Norton gave an example of such a topological analysis applied to
a retail firm for women’s clothing (see next slide).
Sourcing and Distribution Theme
Measurement
Target
Initiative
•
•
•
20% increase
12% increase
•
Likes Program
Reduce
by
50% each year
60%
2.4 Units


Quality Management
Customer Loyalty
•
Corporate Factory
Development
Program
•

Strategic Skills Plan
Merchants’ Desktop
Financial
Profitability
Revenue
Growth
Customer
Product
Quality
Shopping
Experience
Internal
“A” Class
Factories
•
Operating
Income
Same
growth


-
Return rate
Quality
Other
Customer loyalty
Ever active
# units


Merchandise
from
“A”
factories
Items in stock
•
•
70% by year
3
85%
% of strategic
skills available
Strategic systems
vs. Plan



Year 1 (50%)
Year 3 (75%)
Year 5 (90%)
•


Line Plan
Management
Learning
•

Factory
Relationship
Skills
store
Merchandise
Buying/Planning
Systems

“The strategic theme describe the “recipe” for combining the
intangible ingredients of skills, technology, and organizational
climate with internal processes, such as sourcing and
distribution, to create tangible outcomes – customer loyalty,
revenue growth, and profitability. In this way, the Balanced
Scorecard provides the measurement and management
framework for knowledge-based strategies.”[i]
[i] Ibid., p. 72
Strategy as a step in a continuum

We have to make some additional specifications to the concept of
strategy. Strategy is “one step in a continuum”. It corresponds to the
operational act of defining “the logic” of how a vision proposed by
a leader could be achieved within an organization. The strategy
makes credible a vision. It can even “quantify” a vision, as Gerry
Isom proceeded immediately after the moment he accepted the
presidency of the division of a well-known company (CIGNA’s
Property & Casualty Division). The management process, therefore,
involves many steps, starting with the mission of an organization
(“why we exist”) continuing with the “core value” (“what we believe
in”), the vision (“what we want to be”), followed by strategy (our
game plan), the Balanced Scorecard as the step of implementation
within this continuum, strategic initiatives (what we need to do),
personal objectives and, finally, the strategic outcomes. [i]
[i] See Kaplan, Robert S., Norton, D. (2001). Op. cit., p. 73


All these steps are sequences in a continuum which we have chosen
to call organizational process. This perspective makes explicit that
an organization is not merely a static structure but a strategic
organizational process. “The process begins in a top down fashion,
clearly defining strategy from the perspective of the shareholder and
customer.” [i]
“It asks «What are the financial objectives for growth and
productivity?» (…) Once the financial objectives have been specified
the process continues by asking, «Who are the target customers that
will generate revenue growth and a more profitable mix of products
and services? What are their objectives, and how do we measure
success with them?» The customer perspective also should include
the value proposition, which defines how the company differentiates
itself to attract, retain, and deepen relationships with targeted
customers.” [ii]
[i] Ibid., p. 76
[ii] Ibid., p. 76

“Financial and customer objectives are desired outcomes, but they
don’t explicate how to achieve them. The internal business
processes – such as product design, brand and market development,
sales, services, and operations and logistics – define the activities
needed to create the desired customer value proposition and
differentiation, and the desired financial outcomes. The forth
perspective recognizes that the ability to execute internal business
processes in new and differentiated ways will be based on the
organization infrastructure; the skills, capabilities, and knowledge of
employees; the technology that they use; and the climate in which
they work. We refer to these as the learning and growth factors.”
[i] Ibid. p. 76
[i]

The four perspectives are not merely perspectives on the
organization but, in the same time, they are organizational
frameworks of the activity and reference frames of how to think,
how to act, to do things so that, finally, the desired outcomes
should be achieved. What is even more relevant is that each of
these four perspectives describes or indicates a latent
organization that become manifest if and while the target
indicators (which appears to the employees as the exigencies) are
accomplished. We can see that “the architecture of the Balanced
Scorecard has a top-down logic, starting with the desired
financial and customer outcomes and, then, moving to the value
proposition, business processes, and infrastructure that are the
drivers and the desired outcomes constitute the hypothesis that
define the strategy.” [i]
[i] Ibid., p. 77
Source: Value Based Management.net. Available from:
http://www.valuebasedmanagement.net/methods_balancedscorecard.html

They are “focused themes” of a certain strategy and they allow
the organizations “to deal with the conflicting priorities”[i] in
order to make decision on a bipolar axis between opposite
alternatives such as: “growth versus profitability” or “long-term
versus short-term”. The strategic themes reflect the corporation
executives’ view of what must be done internally to achieve
strategic outcomes.”[ii]
[i] Ibid., p. 78
[ii] Ibid., p. 78
Aligning the Organization to the Strategy


What is an organization viewed from a strategic management
perspective? It consists, mainly, of “multiple business units”,
“multiple divisions” and it appears us as a “collection of shared
service units”. A difficult goal emerges for such organizations:
“to link their scorecard, developed at the corporate or division
level, down to their decentralized organizational units.”[i]
To do this involves creating “alignment and synergy across the
organization”[ii]. In order to implement its strategy focused on
customer, Mobil company gave it up to its centralized
organization by replacing it with a new one consisting of 18
geographic business units.
[i] Ibid., p. 44
[ii] Ibid., p. 44

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“In addition, the previously centralized staff functions had been
transformed into 14 shared service units (e.g. information
services, finance, planning and analysis, human resources, and
environment and safety) that had to sell services to the local
business units and get agreement from them on prices and levels
of service provided.”[i]
Two challenges emerged from such a new organizational
situation. The first one was referring at how to keep these 18+14
units, which were working as different entities, “focused on the
same high level strategy”[ii]. The second one was referring at
upgrading “the skills of the newly appointed heads”, knowing
that the business units heads “had grown up” within the old
organizational structure, that is “within a structured, top-down,
functional organization.”[iii]
[i] Ibid., p. 44
[ii] Ibid., p. 44
[iii] Ibid., p. 44


The transition to the new organization had to start with the upgrading the skills of
the top executives. Here is the witness of one of them: “We were taking people
who had spent their whole professional life as managers in a big functional
organization, and we were asking them to become the leaders of more
entrepreneurial profit-making businesses, some with $1 billion in assets. How
were we going to get them out of their historic area of functional expertise to
think strategically, as general managers of profit-oriented businesses?”[i]
The Balanced Scorecard proved to have the power “both to create strategic
awareness and skills among the new units managers”[ii]. It revealed to work
optimally as a mechanism proper to attain such a goal to create a new strategic
potential and “to align the strategies of the decentralized units with each other
and with the division”[iii]. The leadership team created the scorecard as a
“template” to be multiplied elsewhere in the organization.
[i] R. S. Kaplan, “Mobil USM&R (A): Linking the Balanced Scorecard”, 9-197-025 (Boston:
Harvard Business School, 1996), p. 44
[ii] Kaplan, Robert S., Norton, D. (2001). Op. cit., p. 44
[iii] Ibid., p. 44



“The template” is a logical construct that can be used in order to build a
strategy map, therefore, to describe a strategy and, by doing this, to improve
the “quality of executive teams’ insights”. The template is, therefore, a critical
reference frame for analyzing different scorecards being used by the Strategic
Business Units (SBU) of a company. The management team will compare
“the scorecards being used by SBU’s to the template.”
“Applying the template to SBU scorecards, executive team could
identify gaps in the strategies being implemented at lower levels of the
organization and ensure that the high-level strategies were truly reflected on
local scorecards.”[i] The templates help us also to keep up the control over a
performance measurement system which typically involves “aggregation of
stand-alone measures, such as return on capital employed, customer
satisfaction, and defect rates.”[ii]
We should regard the Balanced Scorecard not only as a method of
management research but also as a way of thinking, expressing a state of mind
and an organizational ethos, a new evolutionary phase in the evolution of the
spirit of capitalism.
[i] Ibid., p. 99
[ii] Ibid., p. 99