Transforming Balanced Scorecard to Support Strategic Agility – Interview with Dan Montgomery

The Balanced Scorecard evolved from a measurement system into a complex strategy execution framework. Today it helps companies all over the world to describe and execute their strategies. Properly implemented BSC is supposed to help any organization, but we often hear that managers have faced some difficulties, in which BSC did not work, and that executive teams stopped using it or reduced the usage to a simple yearly reporting. Probably the reason is that the strategy described with BSC is not flexible enough to respond to the rapidly changing business situations.

You need to develop both Inner and Outer Agility… You could think of it as balancing the “left brain” and the “right brain” of the enterprise.

Dan Montgomery.

Today, we’ll be talking about strategic agility with Dan Montgomery, co-author of “The Institute Way: Simplify Strategic Planning and Management with the Balanced Scorecard,” internationally recognized expert in the fields of strategic planning, balanced scorecard, and leadership.

Aleksey: Hello Dan, thank you for participating in this interview. I think any leader wants to have an agile strategy, actively use “strategic thinking, and ” be flexible to the new challenges… Some believe that their approach is already good enough… Do you have a quick test that a CEO or a business owner can use to see if their business/strategy is “agile” enough?

Dan: … I look at 3 factors to help my clients understand what strategic agility means to them.

First is Focus:

• Do you have a clear sense of who your customer is,
• What they value, and
• A strong value proposition to meet that?

Second is Engagement:

• Does your team have a widespread sense of strategic awareness – not only what the customers are thinking, but other market forces, competition, etc?
• Are you able to challenge old mental models that worked in the past and innovate together?

Third is Action:

• Do you have a bias for decisiveness and commitment?
• Is there a regular process – a cadence – for reexamining priorities and shifting people and resources to where they will give the greatest benefit?

We’re publishing a free online assessment to help people evaluate for themselves how agile they are, and what they can do to become more agile. We’re planning to have it available by the end of January.

Aleksey: What do you recommend for the companies that already have a Balanced Scorecard implemented. Can BSC support agile strategy or is it possible “by design”?

Dan: … The problem with a lot of BSC systems is that a lot of effort goes into getting the system designed, then people move on to the next project. If you’re just using it to report on performance occasionally, it won’t stay fresh.

It needs to be part of a bigger planning cadence that promotes a regular flow of conversations that make strategy real for everyone.

You want to invite more of your team to challenge or confirm the assumptions that underlie your strategy. And, you use these insights to rebalance your portfolio of strategic initiatives on a regular basis. How often you do this will depend on how volatile your industry is – many software companies do this quarterly or even more often.

Aleksey: One of the biggest issues with the Balanced Scorecard is lack of engagement/buy-in from business unit managers and line-level employees. How can an agile approach help to solve this problem?

Dan:… In addition to using the BSC more thoroughly and frequently, as I said above, there’s also the issue of how you engage people in designing it in the first place. For instance, in our book “The Institute Way,” we go into a lot of detail about how to craft a high engagement project that gets people involved all the way from the executive suite to the shop floor.

You want a balance between the senior leaders who define “what” the organization will do, and many others in the organization who have a lot to say about “how” to do it in a way that’s practical and achievable. And business unit managers need to understand how to cascade the scorecard to make it meaningful and relevant to that unit, not just a copy of the corporate BSC.

Aleksey: What is needed to implement an agile approach to the strategy? Can we actually “implement” it or is it more about achieving a certain mind shift?

Dan: … It’s both. That’s why we say you need to develop both Inner and Outer Agility.

• Outer Agility includes practical management techniques and tools that empower you to respond quickly to change in your market, focus and prioritize on the most important actions.

But this doesn’t work without the right executive mindset and corporate culture.

• That’s what we mean by Inner Agility. It’s about addressing the personal and interpersonal roadblocks that get in the way of even the most well-intended management approach.

You could think of it as balancing the “left brain” and the “right brain” of the enterprise.

Aleksey: In your article on LinkedIn, you described one attribute of strategic agility as “a continuous process of disciplined experimentation.” I believe these experiments are not random. How does a company choose where to experiment? Are these experiments always aligned with the current strategy?

Dan: … Some people have a negative reaction to the idea of strategy as “experimentation.” We like to pretend we can predict the future and seek to control it. Disciplined experimentation means treating strategy as a learning process.

• Yes, experiments must be aligned with the current strategy, or I’d question why you’re doing them.
• Experiments aren’t just random activities; they are very focused on their impact on selected metrics. It’s all very scientific.

A 3-5 year strategy embodied in your strategy map should provide room for metrics and initiatives that speak to multiple horizons.

• The near term horizon is “keeping the lights on.” That means making the most of what you currently sell, so in that case you can measure success in terms of sales and cost management.

• The longer term horizons speak to breakthrough thinking, and require deeper questions and learning. In that case you would want measures of the strength of your innovation pipeline, and perhaps some external projections of market category growth.

Both horizons are in the strategy, but you’d have different metrics and targets.

Aleksey: Studies show that many BSC implementations failed because people used spreadsheet and presentation software for the complex BSC projects. What about agile strategy? Do you thinking that using some automation and/or visualization tools is a good idea?

Dan: … Metrics are only useful insofar as they guide decision-making. We’re overwhelmed with data these days, and the challenge is to make sense of it.

Good visualization is necessary to create a shared strategic perspective amongst your team.

One of the principles that the agile movement adopted from lean manufacturing is the idea of highly visible metrics. These form part of the sensory environment of the workplace. So, for instance, a manufacturing plant might have current production and quality statistics displayed prominently on the floor for all to see. Metrics that can be acted on short-term should be very obvious.

Having said that, many BSC metrics are longer term in nature, and vary in their relevance to a given person. Dashboards need to address the context of the individual user so we don’t subject people to information overload.

You need a common database of valid information, with a customizable front end that makes it actually useful to an individual, and good presentation tools to support conversation and decision-making.

Spreadsheets, by design, don’t do a good job of this.

Aleksey: According to your experience as a consultant and trainer at Agile Strategies, what are the most typical problems that your clients face when start with agile strategy?

Dan: … I’d name three.

First, clients are either missing their strategic targets now, or they are anxious that they will be soon. The BSC strategy map is a great way to walk through a root cause analysis of poor financial or market performance, look at the processes and capacities that are needed for success, and write a new story that everyone can understand and support.

Second, the strategy might be clear, but the leader doesn’t feel that the team is on board, equipped and motivated to do what needs to be done. Kaplan and Norton called this “making strategy everyone’s job.” This is where greater engagement with the strategy is essential.

Third, everyone may have the best intentions and motivations, but projects just aren’t getting done fast enough. This is the big contribution of Agile, with its focus on the nature of workflow. That’s why teams that use agile are 15-30% more productive, and certainly more predictable. When you combine this with agile portfolio management, you get people focused on the most important things, and doing them more productively at the same time. Up to this point, agile has been proven in the software development context, but we are finding that it’s really useful for all kinds of initiatives, not just technical ones.

Aleksey:What about Agile Strategies Toolkit™? What can companies learn from it?

Dan: … The Toolkit is a compilation of best practices we’ve learned from the most agile companies – particularly those in volatile global industries like technology and manufacturing. But anyone can use them. There’s a lot of good writing out there about principles of strategic agility. But, we’ve come up with first practical, step-by-step approach for building agility in your company that gives you the specific tools for the job.

There’s a free download at www.agile-strategies.com/report for anyone who wants a deeper idea what the tools are. If you sign up there, we’ll also send you a link for the online assessment when it’s ready!

Aleksey: I believe you track the performance of your clients after the training. Can you share some success stories or case studies that could probably inspire other business professionals?

Dan: … Since we’ve been offering Agile Strategies over the past year, we’ve had two distinct types of clients:

• There have been people who already had a Balanced Scorecard, and wanted to become more agile in deploying it.
• And there are those who are already using agile project management techniques, who want the longer-term perspective that the BSC offers.

I would say that the companies already using agile have had the best results.

My theory is that they have already become agile in their way of thinking and their way of having conversations – the “inner agility” I spoke of earlier. Those conversations may have been about shorter-term projects and project portfolios, but when they’ve opened up the conversation to strategy, they already have the engaged, collaborative culture to support that.

Unfortunately, many BSC implementations are what agile people would call a “waterfall” approach. You start at the top and it cascades down through the organization. If I’m sitting in a line or support department, someone comes in, presents the corporate scorecard, and tells me to come up with some measures and initiatives. Over time, the strategic focus gets lost the further down the line it goes.

Agile folks are critical of this mindset. It creates extra formality and complexity that gets in the way of responding quickly to change. In agile, there’s much more emphasis on staying in touch with the customer and keeping the team empowered and engaged.

Aleksey: If you could give to a business owner just one advice about strategic agility… what would it be?

Dan: Recognize that you can only do a handful of strategic initiatives well. You might even start with one. One with a very clear, customer-focused KPI, such as new customer acquisition. Create a backlog for other bright ideas, but get one thing done before you move on. This will help you keep a sharp focus and build confidence.

Aleksey: Thank you very much for your answers. I hope to hear more inspiring stories from you and your clients soon.